Nvidia (NASDAQ: NVDA) The stock has sent investors on a wild ride so far in 2024. It traded at a split-adjusted price of around $48 at the start of the year. The price rose to $140.76 in mid-June, then fell to $99 in early August before recovering enough to trade around $130 a share in mid-August. It then fell 21% in a few weeks to trade around $103 in early September before recovering somewhat over the past week and now trading around $118.
Phew. What a wild ride.
Of course, it’s somewhat understandable. As the center of the artificial intelligence (AI) boom, Nvidia carries a lot on its shoulders, and expectations for this tech stock are sky-high. Even after beating consensus estimates in its latest earnings report, the stock price still fell. Apparently, Wall Street didn’t think it had beaten their estimates by enough. While the stock price is currently on the rise, investors are hyper-tuned to its performance and each an indication of where things are going.
It may also interest investors that Nvidia CEO Jensen Huang has been selling some of his Nvidia stock. In the past month alone, Huang sold 720,000 shares, worth a total of about $78 million.
What does it mean that Nvidia’s CEO is selling his shares?
This latest sale isn’t his first time cashing in on stocks. Since early July, Huang has sold more than 4 million shares worth about $500 million. At first glance, this might be seen as a sign that the person who knows the business best thinks the stock is going to fall (or that trouble is brewing). But a closer look shows that this isn’t the case. While I don’t know exactly what Huang is thinking, there’s no reason to view these sales as cause for concern.
The simpler explanation comes down to cost of living. The vast majority of Huang’s net worth is tied up in Nvidia stock. Unfortunately, you can’t buy a hamburger (or a superyacht) with stocks — at least not easily. Cash is king, as they say. It’s far more likely that Huang is simply liquidating a small portion of his massive net worth — estimated at around $100 billion today — to keep some cash on hand.
The Securities and Exchange Commission (SEC) has rules for executives who buy and sell their own company’s stock. To avoid any suspicion of insider trading (and to quell any potential transaction-related public panic), SEC Rule 10b5-1 allows executives to publish public plans that outline predetermined, automated stock trades that will be handled by a neutral entity. While it may appear that Huang just sold those shares, he decided to do so months ago and did so in a manner that suggests he had very little influence over the price.
Following insider trading can be interesting, but it often means much less than you might think at first glance.
Nvidia steams ahead
In terms of Nvidia’s future stock performance, the path forward has become much more complicated, but I still think the company is in a strong position. The company’s latest quarterly report showed continued growth, with the company doubling its revenue year over year. What investors need to remember is that the key inflection point for Nvidia was the second quarter of last year, so it makes sense that year-over-year growth has cooled somewhat from the 200%-plus growth we’ve seen over the past three quarters. Just look at the explosion in revenue coming into 2023 in this chart below.
While there was some concern that Nvidia could keep the growth going, many of the fears people had have not materialized. Concerns about a delay in Nvidia’s delivery of its next-generation superchips were overblown, and demand for the current generation remains extremely strong. The growing concern about a lack of real value for AI, which could potentially hurt Nvidia’s customers and reduce their spending, has also not happened yet. Companies like Amazon, Meta platformsAnd Alphabet are still in an AI arms race and most expect to increase their spending rather than decrease it.
There could also be more customers around the corner. While Nvidia’s data center revenues are heavily concentrated in big tech, we could soon see a broader base of commercial customers, and even governments starting to invest seriously. This would be a boon for Nvidia. Government-related contracts can be an extremely lucrative source of revenue, and one that is slow to change once the relationship is formalized, providing an additional level of stability.
Finally, the company’s push into the auto industry is just beginning. In the short term, AI-powered infotainment and safety features will drive sales, but down the road lies the real prize: self-driving cars.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former chief marketer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Nvidia CEO Just Sold $78 Million Worth of His Company’s Stock. Here’s What Investors Need to Know was originally published by The Motley Fool
