Broadcom's VMware Overhaul Draws Brussels Scrutiny as AI Chip Targets Balloon

European Commission fact-finding into Broadcom's VMware licensing moves to in-depth phase, testing the software cash engine behind the AI chip story.

European antitrust officials are drilling deeper into how Broadcom reshaped VMware's licensing terms, quizzing cloud providers across the continent about whether they can realistically swap out the software and whether certification rules have been tilted unfairly since the $61 billion takeover closed.

The European Commission's fact-finding has moved into an in-depth phase, according to Bloomberg, and could yet escalate into a formal proceeding or interim measures. The thread traces back to a formal complaint filed in March by industry group CISPE, following the Commission's initial steps in April 2024. Customers and rivals have repeatedly warned that the revamped licensing regime leaves users sharply worse off.

Ahead of a key deadline in the ongoing dispute, regulators want a precise read on just how tightly corporate clients are locked into VMware's ecosystem — placing Broadcom's software arm squarely in the path of regulatory headwinds.

Two Forces Pulling in Opposite Directions

For investors, the setup pits a rigorous VMware integration against a semiconductor division that is firing on all cylinders. The software unit has served as a dependable cash generator bankrolling chip development; should Brussels restrict bundling practices or price hikes, a core pillar of profitability would come under strain. The open question is whether the torrid growth in custom AI silicon — application-specific chips known as ASICs — can fully offset any softness on the software side.

Wall Street has been watching the operational story closely. Analysts at Macquarie argued that the risk of Google building more processors in-house is largely priced in after this year's pullbacks, and upgraded the stock to "Outperform" on September 3 with a $490 price target. The broker also flagged the shares as a particularly direct route into AI infrastructure ahead of a possible Anthropic IPO.

Truist Financial trimmed its target to $520 from $550 that same day while keeping a "Buy" rating.

Guidance Raised, Quarter-by-Quarter Test Looms

Management reinforced its AI ambitions roughly a week ago, lifting long-term revenue projections. Broadcom is now targeting $115 billion in AI revenue for fiscal 2027, a figure CEO Hock Tan expects to double to $230 billion by fiscal 2028. Accelerated shipments of Tensor Processing Units to Anthropic and Google underpin the forecast, alongside the custom Jalapeno chip being developed with OpenAI and planned deliveries of the TPU 8i to Google and other accelerators.

The bull case rests on the EU review proving manageable and ending without existential changes to the licensing model — VMware customers staying put for lack of direct alternatives, preserving predictable, high-margin software income while chip growth kicks in fully. If deliveries for large projects such as the planned five gigawatts of computing capacity for Anthropic in 2027 land on schedule, the semiconductor business could generate enough momentum to push the valuation back toward earlier peaks.

The bear case feeds on the risk of legal escalation in Brussels. A shift from preliminary information-gathering to a formal investigation, complete with interim orders, could bring licensing changes or meaningful fines, while European cloud providers might accelerate efforts to reduce existing dependencies, weakening customer retention.

Capital Returns Continue

Alongside its expansion plans, Broadcom is pressing on with returning capital to shareholders. The next payout is imminent: a cash dividend of $0.65 per share with an ex-date set for September 21.

The stock closed at EUR 294.00 on Tuesday, leaving it down 1.2% since the start of the year. That leaves a wide gap to the 52-week high of EUR 429.60 — a shortfall of roughly 32% — while the 52-week low sits at EUR 250.55.

Holding above that floor would keep the medium-term uptrend of the AI growth narrative intact. A formal EU antitrust case that drags the price beneath the annual low, however, would force a revaluation of the entire VMware acquisition.

Chip-side risks cut both ways. Total revenue of $29.59 billion in the third quarter of fiscal 2026 beat expectations, yet guidance of $34.8 billion for the fourth quarter fell short of the $35.03 billion consensus. Delays to major OpenAI or Google projects, or further margin erosion from high manufacturing costs, would leave nothing to cushion potential setbacks in software.

Market participants will now train their attention on regulatory signals out of Brussels and the trajectory of the buyback program. Whether the current pace can be sustained hinges largely on the steadiness of operating cash flows.