Broadcom's acquisition of VMware appears to be a resounding success—at least from a financial standpoint. In its latest earnings report for the quarter ending February 2, 2025, Broadcom (NASDAQ: AVGO) posted $14.92 billion in revenue, a 25% year-over-year increase, with net profit soaring 315% to $5.5 billion.

The company no longer separately discloses VMware revenue, instead grouping it under its infrastructure software division, which reported $6.7 billion in revenue this quarter, compared to $4.55 billion a year ago. While a direct year-over-year comparison is difficult—VMware was still independent for most of that period—the numbers suggest a significant revenue boost post-acquisition.

Prior to the merger, Broadcom's software business saw minimal growth, increasing just 3% in 2023 and 4% in 2022. However, VMware's final independent quarter recorded $3.4 billion in revenue, indicating that Broadcom has increased VMware's quarterly sales by nearly $1 billion.

Broadcom's Strategy: Bundling VMware Cloud Foundation

Broadcom's success stems largely from its shift to a subscription-only model, bundling VMware products into higher-value packages. During the earnings call, CEO Hock Tan revealed that the company is pushing customers toward the full VMware Cloud Foundation (VCF) stack, with 70% of its top 10,000 customers already adopting it.

By phasing out standalone VMware products, raising renewal prices, and transitioning more customers to higher-cost VCF subscriptions, Broadcom has significantly increased revenue. Additionally, VMware's operating profit margin has surged from 16% pre-acquisition to 76% under Broadcom, partly due to aggressive cost-cutting.

AI Accelerator Business Expands with Hyperscaler Demand

Beyond VMware, Broadcom's semiconductor business remains strong, generating $8.2 billion in revenue this quarter, up 11% year-over-year. AI-related products contributed $4.1 billion, a 77% surge, exceeding expectations by $300 million due to increased shipments of networking solutions for hyperscale data centers.

A major highlight was Broadcom's expansion in custom AI accelerators, securing its fourth hyperscaler customer (up from three previously). While names weren't disclosed, these clients are deeply engaged in co-developing AI chips with Broadcom, according to Tan.

Broadcom is pushing forward with the industry's first 2nm AI XPU package, targeting 10,000 teraflops of computing power. Additionally, the company is ramping up AI accelerator shipments, providing an existing hyperscaler 500,000 units, with plans to scale to 1 million units by 2027.

Tan also reaffirmed Broadcom's commitment to Tomahawk Ethernet switches, confirming that its AI clusters will continue using Ethernet for networking.

Silicon Photonics Collaboration with Samsung

As AI and cloud computing demands rise, Broadcom has teamed up with Samsung to develop next-gen silicon photonics technology, according to the Chosun Daily. The partnership is reportedly progressing faster than Broadcom's discussions with NVIDIA and other potential partners.

Silicon photonics, which replaces electrical signals with light-based data transmission, is seen as critical for AI data centers due to its ability to deliver speeds hundreds of times faster than copper. Broadcom, which derives 30% of its revenue from wireless chips and 10% from optical chips, is integrating silicon photonics into future ASICs and optical gear.

Meanwhile, TSMC has also made advancements in silicon photonics, securing NVIDIA as a customer and preparing for mass production in late 2025, according to Economic Daily News. Intel, NTT, and SK hynix are also investing in similar technology, further highlighting its strategic importance.

Broadcom's Position Amid Political and Market Uncertainty

Broadcom's financial momentum comes despite external challenges. CEO Hock Tan urged the U.S. government to modernize IT infrastructure using VMware-based private clouds, aligning with potential Trump administration priorities of cutting federal spending and updating government IT.

However, Broadcom faces risks from potential new tariffs, as most of its products are manufactured outside the U.S. When asked about the impact of Trump-era trade policies, Tan stated that it was too early to predict.

Meanwhile, Broadcom's stock price has declined 25% in 2025, partly due to concerns over AI hardware demand following DeepSeek's recent announcements. However, after the earnings release, Broadcom shares rebounded from $180 to over $200 in after-hours trading, reflecting investor confidence in its AI and VMware strategies.

No Further Acquisitions—For Now

Amid speculation about Broadcom acquiring Intel's business units, Tan dismissed the rumors, stating:

"No, I'm too busy. We're focused on AI and VMware, and we have no plans for acquisitions right now."

With its aggressive AI expansion, VMware integration, and strategic partnerships, Broadcom appears well-positioned for continued growth—despite market and political headwinds.