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VMware stock forecast: Can VMW shares shake off SEC charges, staff chaos until Broadcom takeover approval?

By Rob Griffin

Edited by Jekaterina Drozdovica

12:12, 21 September 2022

In this photo illustration a VMware logo seen displayed on a smartphone
Can VMW shares shake off SEC charges, staff chaos until Broadcom takeover approval? Photo: iQoncept / Shutterstock

Shareholders of VMware (VMW) have had a challenging year, with the US technology company’s stock price responding to waves of positive and negative news.

The company’s acceptance of a $61bn takeover by Broadcom (AVGO) in May saw the VMW stock price soar 41% to $131.99 within a couple of weeks. But it’s since lost around 15%, as of 20 September, and has been hit with an $8m penalty by the US Securities and Exchange Commission (SEC) for allegedly misleading investors.

Here we take a look at the company’s financial performance, latest takeover and SEC news, analysts’ price targets and other factors shaping a VMware stock forecast for 2022 and beyond.

What is VMware? 

Founded in 1998, VMware is a leading provider of multi-cloud services for apps, enabling digital innovation with enterprise control. 

Its software helps clients tackle problems through technologies such as edge computing, artificial intelligence, and machine learning.

Headquartered in Palo Alto, California, VMware went public on 14 August 2007, listing on the New York Stock Exchange (NYSE) at $29 a share under the ticker symbol VMW. 

VMW stock price performance

The VMW stock price struggled through a volatile rise in the past five years, climbing to a record-high of $205 in May 2019. It then experienced a series of slumps, wiping out almost half of its value, as of 20 September. 

Although the company has achieved trailing returns of 8.73% over the last five years according to Morningstar data, this is significantly below the industry’s 19.35%. Since the start of 2022, VMW has fallen almost 5%. But that doesn’t tell the full story.

The price had soared 41% from $93.63 on 18 May to $131.99 on 3 June, following the Broadcom takeover announcement, before falling away. Since then the VMW stock price has lost over 15%, as of 20 September.

VMware stock price, 2017 - 2022

A new future for VMW?

It was announced back in May 2022 that technology firm Broadcom had agreed to buy VMware for approximately $61bn in cash and stock. The deal, which will also see Broadcom assume $8bn of VMware’s net debt, was unanimously approved by the boards of both companies. 

VMware shareholders receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. When the deal completes, which is expected in the current fiscal year 2023, Broadcom Software Group will rebrand and operate as VMware.

It will be incorporating Broadcom’s existing infrastructure and security software solutions as part of an expanded VMware portfolio. 

However, reports have suggested that there are concerns among VMware’s staff about the potential fall-out, such as rumours that remote working will be discontinued. 

SEC investigation casts a cloud

During September 2022, the SEC charged VMware for misleading investors about its order backlog management practices. 

The company pushed revenue into future quarters by delaying product deliveries to customers. This concealed its slowing performance relative to its projections.

Mark Cave, the SEC’s associate director in the division of enforcement, said VMware had deprived investors of important information about its financial performance.

“Such conduct is incompatible with an issuer’s disclosure obligations under the federal securities law,” he stated.

Without admitting or denying the findings in the SEC’s order, VMware consented to a cease-and-desist order and to pay an $8m penalty.

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In a statement, VMware noted that the SEC’s comments “do not include any findings” that it failed to comply with generally accepted accounting principles, adding:

“VMware believes this settlement is the right course of action for the company and continues to be committed to operating at the highest level of integrity, including with respect to its public filings and communications with investors.”

Second-quarter earnings

On 25 August 2022, VMware announced fiscal year 2023 second quarter revenue of $3.34bn, which represented an increase of 6% over the previous quarter. 

GAAP net income for the second quarter was $347m, or $0.82 per diluted share. That’s down from $0.97 per diluted share on income of  $411m for the same period last year –  a fall of 16% per diluted share. 

Raghu Raghuram, VMware’s chief executive, is pleased with the performance. “We remain committed to helping organizations unlock the full potential of multi-cloud,” he said.

The VMware stock forecast from Zane Rowe, the company’s executive vice president and CFO, noted the focus on the long-term:

“Our Q2 financial results reflect the continued commitment of the entire VMware team to accelerate innovation for our customers as they move to a multi-cloud environment.”

Analyst views on VMware

What are the VMware stock predictions from analysts? There are so many variables at play when it comes to the stock price  – particularly the impending Broadcom acquisition, according to Danni Hewson, financial analyst at AJ Bell:

“There are some who’ve questioned whether the link up is a smart move and rumblings that key talent is already heading out of the door.”

As far as Hewson’s VMware stock forecast from a business perspective is concerned, she highlighted how VMware has shifted focus from protecting legacy hardware to the multi-cloud.

“It’s made smart partnerships with the likes of Amazon and AMD which leads to more questions about the future of those relationships under a new owner.”

Of course, the economic backdrop has played a role in VMware’s current position. “Like most of the tech/growth players this year’s share volatility made it ripe for takeover and it’s got a bolt load of debt hanging over it,” she said.

Hewson also pointed out how first quarter revenues for 2023 were up but lagged consensus expectations, while margins may take a further hit over the next quarter as operating costs rise.

“No one doubts the frantic pace of progress which has been boosted by hybrid working practices will continue and VMWare has the chops to remain a major player. However, a new broom tends to sweep through and until the dust settles it’s impossible to know what the business of yesterday will look like tomorrow.”

Abhinav Davuluri, sector strategist at Morningstar, has a $147 fair value price for his VMW stock forecast and believes there is a 75% chance of the Broadcom deal being completed at the $138.23 offer price.

“We think the addition of VMware is aligned with Broadcom's push into software and expanding recurring revenue streams.”

Davuluri suggested VMware’s unique value included being the “easy path to embracing any cloud environment” and being able to support legacy compute and storage locations while developing new cloud-based applications

He also highlighted its role in helping organisations achieve the greatest utilisation and security for their networking. 

“Being a ubiquitous layer across on-premises, public clouds, and private clouds for networking, developers, and security teams makes VMware's technology essential for the long term, and we expect the subscription and SaaS journey to accelerate growth in the coming fiscal years.”

VMware stock forecast: Price targets 2022 – 2025

The stock is rated as a ‘hold’, according to the views of 21 analysts compiled by MarketBeat, as of 20 September. Their consensus VMware stock forecast 2022 suggested the price could reach $139.91 in the next twelve months. 

While the VMware share price forecast of the most optimistic analysts expected the price could reach $170, some warned it could fall to $105.

However, according to the algorithmic forecasts of Wallet Investor, the VMware stock forecast 2025  could see the price fall to $80.26 in three years.

Note that analyst and algorithm-based price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, looking at the latest news, technical and fundamental analysis and wide range of analyst commentary. 

Remember that past performance does not guarantee future returns. And never trade money you cannot afford to lose.

FAQs

Is VMware a good stock to buy?

This will depend on your opinion of the stock. As of 20 September, the VMW stock was rated as a ‘hold’ based on the views of 21 analysts in a VMW stock forecast by MarketBeat. However, analysts’ opinions can be wrong. You need to carry out your own independent research to draw a conclusion.

Remember that past performance does not guarantee future returns. And never trade money you cannot afford to lose.

Will VMware stock go up or down?

It’s impossible to know for definite. Many factors will influence the VMW stock price over longer periods. The consensus view of Wall Street analysts is that the stock could reach $139.91, according to average price targets of 21 analysts compiled by MarketBeat, as of 20 September. The targets ranged from $105 to $170. Remember, analysts’ predictions can be wrong.

Should I invest in VMware stock?

It’s important to do your own research and always remember that your decision to invest in the VMW stock should depend on your attitude to risk, your expertise in the market, portfolio composition and your investing strategy.

Remember that past performance does not guarantee future returns. And never trade money you cannot afford to lose.

Markets in this article

AVGO
Broadcom
151.63 USD
-12.47 -7.620%
VMW
VMware
142.17 USD
-4.25 -2.910%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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