The stock leading the markets up this year, and really for the past two years, has been Nvidia (NVDA +0.20%), which briefly became the most valuable company in the world in June before falling back to its close third-place position.
As the stock made new highs, Nvidia CEO Jensen Huang, along with other Nvidia insiders, sold a substantial amount of stock in June -- and have continued selling this month. So, how should current Nvidia shareholders take these sales, and should they be worried?
NASDAQ: NVDA
Key Data Points
$169 million for Huang, $700 million for other insiders
In June, Huang sold 1.3 million shares of Nvidia, bringing in $169 million worth to his personal wealth. The June sales were Huang's first sales of the year. In addition, other insiders sold $700 million worth of stock.
Not only that, but since the calendar flipped to July, Huang has sold another 480,000 shares worth a little over $60 million, bringing his total 2024 sales to roughly 1.78 million shares worth $230 million.
That's a lot of money. But is it reason for Nvidia investors to be worried?
Why Nvidia shareholders shouldn't be worried over stock sales
The sales in and of themselves shouldn't be much of a worry for shareholders. After all, Huang still owned over 934 million shares (split-adjusted) at the beginning of June. That means his June and July sales have only equaled 0.2% of his total holdings!
So while the sales amount to a lot in dollar terms, they're not much to be worried about in terms of Huang's total net worth. In fact, given Nvidia's meteoric rise over the past 18 months, one would have probably expected Huang to cash out even more.
Furthermore, Huang's sales have come as a result of a 10b5-1 trading program. This is a type of program that executives often make with brokerage houses to sell shares of their company's stock, up to a certain amount and at a pre-determined level. Often, there is a delay between when an executive announces the program and when the brokerage house starts trading shares. In this case, Huang actually adopted the 10b5-1 program on March 14, exactly three months before the first sales on June 13.
The plan is scheduled to run through March 2025 and may have an upper limit of 6 million shares. So even after all of June and July's sales to date, there is still a majority of the plan's sales remaining. Even if the entire plan is sold through March 2025, that would still amount to less than 0.65% of Huang's ownership stake.
Image source: Nvidia.
But there are other valid concerns around Nvidia stock right now
While Jensen Huang's share sales are definitely not a reason to panic and sell Nvidia shares, there are a few risks to which shareholders should be paying attention.
The first is the possibility AI investment doesn't keep up its torrid pace. In recent days, there have been reports suggesting the pace of AI spending could come to halt. In late June, Goldman Sachs' head of equity research Jim Covello put out a note saying the AI spending boom has many similarities with the dot-com bubble.
Specifically, Covello doesn't believe the use cases for AI will result in revenues or cost savings that justify the current level of investment. He believes investors are pressuring companies to invest in or experiment with AI with "completely unclear" uses for the current AI technology.
Similarly, around the same time, a partner at the famed venture capital firm Sequoia penned a blog post stating that he also doesn't believe cloud and software giants will generate enough incremental AI revenue to justify this level of investment.
Aside from AI use cases, there are also competitive worries, especially since Nvidia is currently generating astronomically high margins. Not only are rivals Advanced Micro Devices (AMD +2.06%) and Intel (INTC +1.95%) coming out with new AI chips and open-sourced software in an attempt to break through Nvidia's CUDA software moat, but every cloud giant out there is also now making its own low-cost, in-house AI accelerators.
But Nvidia could very well still defy skeptics
It should be noted other economists aren't as pessimistic on AI. In fact, even another Goldman analyst, senior economist Joseph Briggs, disagreed with Covello, and believes AI-related cost-savings and revenue will be higher than Covello's forecast as the technology improves.
Furthermore, Nvidia does have a powerful first-mover advantage that should still give it a large market share of AI computing, which should lead to growth even as more competitors come on to the scene. That is, of course, provided AI investment delivers returns for companies downstream.
All in all, Huang's stock sales are not a reason to worry about Nvidia stock. But the uncertain proliferation of AI use cases and incoming competition are.
