VMware: Broadcom's Second Biggest Business Set to Accelerate

Key Points

• Broadcom's AI chip sales dominate the conversation around this stock, given its incredible growth rates.
• However, its software business, centered around VMware, is also massive.
• Importantly, the company expects software growth to take off next quarter, providing another reason for optimism around Broadcom.

For good reason, investors have come to see Broadcom NASDAQ: AVGO as a clear leader in the artificial intelligence semiconductor market. The company’s AI semiconductor revenue jumped 143% year-over-year (YOY) in its latest quarter to $10.8 billion, or 49% of total sales. Notably, Broadcom is still far behind in AI chip sales versus NVIDIA NASDAQ: NVDA, whose data center revenue came in at an astonishing $75.2 billion.

Despite this, Broadcom remains well ahead of other AI chip companies like Advanced Micro Devices NASDAQ: AMD and Intel NASDAQ: INTC. Broadcom’s AI chip revenue was $5 billion higher than AMD’s Q1 2026 data center sales of $5.8 billion. Meanwhile, AI chip sales were more than double Intel’s Data Center and AI (DCAI) revenue of $5.1 billion. Broadcom expects a huge acceleration next quarter, guiding for AI semiconductor growth of over 200% YOY to $16 billion.

However, a key part of Broadcom’s business sometimes gets overlooked, given the massive attention AI chips garner. That business is infrastructure software, anchored by VMware. For investors, this is a critical part of Broadcom’s business to understand, as AI is far from the only place Broadcom expects to drive growth.

Infrastructure Software: A Large Chunk of Broadcom’s Business

Broadcom’s revenue breakdown shows why infrastructure software is a key part of its business and why investors need to stay aware of it. In its Q2 fiscal year 2026 (FY2026), infrastructure software generated $7.2 billion in revenue. This was equal to a very significant 32% of its $22.2 billion in total revenue. (Note that Broadcom’s fiscal reporting period is slightly ahead of the standard reporting period used by many companies.)

Nonetheless, all eyes are on AI chips, as this is where Broadcom is generating the vast majority of its growth. For perspective, infrastructure software revenues grew just 1% YOY two quarters ago and 9% YOY last quarter.

Thus, this segment's growth has fallen considerably compared to fiscal year 2025, when infrastructure software sales posted impressive growth of 26% YOY. This was largely due to the extensive price increases Broadcom implemented after buying VMware. Given this dynamic, there has been a narrative that Broadcom has exhausted price-increase-driven growth and that software sales growth may stagnate again. However, Broadcom’s latest commentary strongly pushed back on this idea.

Broadcom Forecasts Highest Software Growth in Over a Year

In Q3 FY2026, Broadcom expects a very significant reacceleration in software growth. The company projects sales of $8.9 billion, or an increase of 31% YOY. Notably, this would mark the company’s fastest software growth rate since the beginning of 2025.

Even more telling were CEO Hock Tan’s comments about software going forward. Tan said, “As you can see, in Q3, we're seeing an accelerated growth, and we expect that to continue, I guess, for the next multiple quarters as this demand picks up.” It is unclear whether this means Tan expects growth to accelerate beyond 31% in the future. However, at the very least, Tan is pointing to stronger growth than the recent single-digit figures.

Tan also provided a very confident answer to the one analyst question that was specifically about software. Citigroup analyst Atif Malik asked, “Are you guys seeing any impact of AI, agentic AI, on your software growth and renewals? And if you can just talk about some sort of long-term growth for that business.”

This question pokes at a fear that has shaken many software stocks: AI-driven disruption. Tan responded, “Well, we're not seeing it… We do not expect to see any impact on software products.” Here, Tan is clearly saying that he is not seeing a negative impact from AI on software sales and does not expect to going forward. Much of this rationale stems from VMware's tight integration with computing hardware. VMware directly helps manage the allocation of computing resources, making displacement difficult. Additionally, the proliferation of AI requires more computing resources. In turn, this should increase the importance of managing those resources, the exact service VMware provides.

Broadcom’s Software Segment: A Solid Supplement to Hyper-Growth AI Chips

Broadcom’s software business is not only large, but the company also expects it to grow strongly going forward. Meanwhile, there are solid reasons to believe that AI is positive for its software business, rather than a clear threat. To top it all off, this segment is extremely profitable. It generated a gross margin of 93% last quarter, and the operating margin rose 310 basis points YOY to 79%. Overall, Broadcom’s undeniably strong AI semiconductor business is far from the only reason to have confidence in this stock’s outlook.