Adding IIS-APP & MSSQL-DB to Network // Best design/deployment?

For our existing setup, we’ve got a large MSSQL database (DB1), and an IIS application (APP1); each has its own respective machine (VM1 & VM2). We are soon adding another MSSQL DB (DB2), and IIS application (APP2).

APP2 is a sort of enhancement that will supplement APP1 and will interact w/ both DB1 and DB2. I’m trying to determine the best deployment, considering speed/scalability.

[SCENARIO-A] Initially, it was proposed that APP2 and DB2 would be on their own single VM; overall structure looking like this: VM1(DB1), VM2(APP1), VM3(DB2, APP2)

[SCENARIO-B] Now it’s being proposed to put them on the two existing VMs: just putting more RAM on both VMs; looking like this: VM1(DB1, DB2) VM2(APP1, APP2)

This second scenario does not sit well with me, but I’ve been wrong before. Do any of you guys see a benefit to deploying this new APP2/DB2...