On Wednesday, Broadcom’s shares increased by almost 10%.
Wall Street interprets Oracle Corp.’s forecasts of massive growth in its cloud business over the next several years as evidence that the artificial intelligence craze is still going strong. On Wednesday, semiconductor stocks rose as a result of this optimism.
However, one stock has outperformed the others, and its results might be the result of more than simply lingering Oracle (ORCL) fervor. On Tuesday, Broadcom Inc. (AVGO) revealed that its CEO would receive a sizable bonus if he could assist the company in surpassing its AI business goals. On Wednesday, the stock increased by almost 10%.
See also: Oracle’s stock is making a historic rise that has never been seen on Wall Street.
Broadcom CEO Hock Tan declared last week that he will remain in his position until at least 2030. Broadcom has now released further information regarding his compensation over that period. Performance-stock units, or PSUs, would be awarded to Tan specifically if he remains with the company and meets “challenging AI-related revenue targets” between fiscal 2028 and fiscal 2030.
Tan must assist Broadcom in generating $90 billion in “applicable AI revenue” during any four consecutive quarters within the performance period in order to reach a 100% payout percentage, or 610,521 shares. He would receive a 200% payout percentage if his AI revenue reached $105 billion, and a 300% payout percentage if it reached $120 billion or above. Tan will completely renounce the PSUs if Broadcom’s applicable AI revenue is $60 billion or less.
Broadcom defines AI sales as “including but not limited to revenue with respect to the company’s custom AI accelerators, XPUs, ASICs and networking and connectivity solutions.”
Also see: Nvidia becoming ‘eerily reminiscent’ of Broadcom. The impact is being felt by both stocks.
Because the thresholds apply to a timeframe that is years away and analysts don’t always model that far out, it is difficult to monitor how well Broadcom’s goals align with the consensus view. This is particularly true for a category like AI revenue, on which Broadcom has made some prior disclosures but doesn’t break out as a formal segment.
According to Broadcom’s filing, however, the goals are “essential to the company’s next phase of transformative growth due to AI.” Additionally, Tan stated during a Goldman Sachs conference last week that Broadcom presently generates $20 billion in AI revenue annually.
He stated, “That gives you a sense of our belief” in “how strong the demand for compute is in this race towards AI and generative AI, superintelligence,” according to a transcript from FactSet.
Tan’s compensation is in line with PSU’s objectives in the most competitive market at the moment.
In the chip industry, Advanced Micro Devices Inc.’s stock (AMD) increased more than 2%, while shares of Nvidia Corp. (NVDA) and Micron Technology Inc. (MU) increased more than 3%. Broadcom was the largest gainer in the 2% increase in the PHLX Semiconductor Index (SOX).
Analyst Sebastien Naji of William Blair said that Oracle’s expenditure comments appeared “broadly positive for AI suppliers,” with Nvidia and Arista Networks Inc. poised for “outsized benefits.” On Wednesday, Arista’s stock (ANET) increased by 6%.
