Most of the market fall in 2022 has been caused by a huge re-rating of valuation for growth stocks. Technology is the main target and victim of the so-called market rotation. Recent volatility is casting some doubt on the market ability to gauge valuation. 

In that context, Broadcom’s bid for VMware offers a good reality check. Broadcom has a high reputation for both value-accretive acquisitions and efficient and cost-focused management. They launched a $142bn bid on their competitor Qualcomm. The bid was blocked by Donald Trump. This could have been a smart move: Qualcomm’s share price almost tripled in the following years (and this does not take in account the cost-merits from the merger would have created).

Being denied access to hardware, Broadcom bought software companies: CA Technology in 2018 for $18bn and Symantec the following year for $10.7bn. They wisely remained on the sideline between 2019 and today and did well as their share price quietly doubled, escaping most of the recent correction. 

The Broadcom-VMware deal was completed within two weeks. Banks were able to organize a $32bn loan and markets seemed happy as both stock prices rose on the news. The convergence between software and semi-conductors is supported by the rising relevance of huge data storage on the cloud. As frequently reported by AMD or NVDIA, CPU and GPU power can be significantly enhanced by software. Broadcom is happy to pay a 33X PE for a relatively slow growth company. 

The deal indicates that serious insiders are putting serious money on the table finding value in technology at current levels. There is cash in the system and decision and implementation can be quick. The secular migration to the cloud and AI opens very significant growth and profit opportunities.

This is not 2000.