Carvina Capital: Broadcom Sees Strong AI-Driven Growth

Broadcom's latest quarterly results point to accelerating demand for custom AI chips and data-centre networking, with backlog offering 18-month visibility even as investors interrogate margin pressure and the economics of scale in silicon.
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With December markets watching the next phase of the AI investment cycle, Carvina Capital Pte. Ltd. points to Broadcom's fiscal fourth-quarter numbers as a signal that spending is hardening into contract-backed demand, with group revenue rising 28% compared with the same quarter a year earlier.

Broadcom reports $18bn of revenue for the quarter, ahead of the $17.5bn consensus for the same period, while adjusted earnings come in at $2 a share versus $1.9 expected. The stock rises 2.3% in after-hours trading immediately after the release and stands about 122% higher over the preceding 12-month period, a reminder that the market already prices in a sizeable share of optimism.

The AI semiconductor business remains the engine of growth. Revenue from AI-related chips reaches $6.5bn in the quarter, up 74% compared with the corresponding quarter a year earlier, while the company discloses an AI backlog of $73bn scheduled for shipment over the next 18 months. At quarter-end, the AI backlog accounts for close to half of total backlog of $162bn, underlining the degree to which data-centre build-outs and networking constraints shape demand.

A research note from Carvina Capital puts the emphasis on visibility rather than exuberance, with Peter Jacobs, Director of Private Equity, arguing that "a backlog of this size matters because it turns the AI narrative into a contracted pipeline, giving investors a timetable rather than a slogan". For corporate finance teams, the distinction is important: capital expenditure survives higher borrowing costs more readily when orders are anchored to multi-year deployment schedules.

Forward expectations now rest on whether those orders convert smoothly into delivered revenue. Analysts project about $96bn of revenue over the next financial year, roughly 50% higher than revenue generated over the preceding 12 months, a pace that eclipses Broadcom's average annual growth of about 20% over the preceding five financial years. Management guidance indicates AI semiconductor revenue of around $8.2bn in the coming fiscal first quarter, and Jacobs describes the strategic wager as "a scale contest where custom silicon moves from a niche product to industrial manufacturing, without surrendering control of cost, delivery and quality".

That manufacturing shift brings its own tensions. Broadcom signals that consolidated gross margin in the coming quarter is likely to fall by about 100 basis points from the immediately preceding quarter as lower-margin AI products take a larger share of sales, a reminder that customers buying at hyperscale bargain hard. Investors respond by interrogating earnings quality as closely as headline growth, and Jacobs characterises the market's test as "whether volume growth arrives faster than margin dilution, because revenue only earns a premium when profitability travels with it".

Broadcom's customer strategy reinforces the point. The company leans on long-term design relationships where cloud operators and model developers co-create accelerators, interconnects and switching silicon for their own data centres, tying performance to specific software stacks while locking in multi-year procurement. Reports of successive orders valued at $11.2bn and $12.3bn across the two most recent quarters, with delivery schedules extending into late next year, illustrate how quickly spending scales once a platform standardises on a chip architecture.

Software provides the other counterweight. With VMware now integrated, the software unit generates $6.6bn of revenue in the fiscal second quarter and represents about 36% of quarterly sales, while recurring revenue rises above 85% of software takings in the latest reporting period as subscription licensing expands. In a world of tighter money, predictable cash flows carry a premium, though customer pushback on pricing and flexibility remains a live issue as contracts approach renewal.

With central banks keeping policy restrictive and boards applying tougher tests to investment projects, the question is not whether AI changes corporate computing but whether the economics of that transition remain attractive for suppliers and their shareholders. Carvina Capital signals that Broadcom's blend of backlog, customer concentration and software recurring revenue warrants close monitoring through the next few quarters, and Jacobs sums up the calculus as "The market pays for visibility and discipline, and it punishes any hint that AI becomes a volume business without pricing power".

About Carvina Capital

Carvina Capital Pte. Ltd. (UEN: 201220825D) is a Singapore-based firm established in 2012. It focuses on research-driven, long-only public-equity strategies for institutional and professional markets and is evaluating products that could be accessible to retail investors. Its investment approach combines fundamental research with disciplined risk management designed to compound capital across full market cycles.

Further information is available at https://carvina.com [https://carvina.com/].

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Country: Singapore
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