Nvidia (NVDA +5.93%) has been the stock sensation of the artificial intelligence (AI) era, with shares up 700% since the start of 2023. However, there recently has been one potential warning sign that financial media outlets and investors have keyed in on: CEO Jensen Huang is rapidly trimming his stake in the AI leader.
Nearly every day for the past few months, Huang has sold Nvidia stock. For example, on Sept. 12 and 13, he sold about 200,000 shares, worth more than $20 million.
Image source: Getty Images.
Why Huang keeps selling Nvidia stock
According to Nvidia filings, Huang's stock sales are based on a predetermined plan known as a 10b5-1 that he entered into on March 14, 2024. The 10b5-1 structure exists so insiders like Huang can sell their company stock without any suspicions of insider trading. Because the transactions are pre-determined and authorized by Huang's brokerage, they're unrelated to the price of the stock, any news, or material non-public information.
Investors don't know the exact plan around Huang's 10b5-1, but it's clear it involves frequent Nvidia stock sales from the CEO's holdings.
Why the sale bothers some investors
Even though the stock selling was pre-planned, it still shows that Huang is trimming his stake in Nvidia. Notably, Huang also entered into the plan in March when Nvidia stock was at a significantly lower price than it is now.
However, CEO stock sales don't necessarily indicate bearishness on the stock or even that it's time for profit-taking. Individual investors should remember that Huang is now one of the richest people in the world, with a company that's worth nearly $3 trillion. As of March 25, 2024, he owned 934,637,910 split-adjusted shares of Nvidia, which would be worth more than $100 billion at the stock's current price.
In that light, selling even $10 million worth of Nvidia stock a day doesn't seem drastic. Even if Huang sold that much every trading day for a year, it would only put a small dent in his holdings, reducing them by roughly $2.6 billion.
Considering that, it seems harder to see the sales as a significant bearish signal about the stock, as they only amount to a small percentage of his stake. Additionally, they're not enough to have an impact on Nvidia's trading volume, as the business is worth nearly $3 trillion, and more than 340 million shares, or roughly $40 billion worth, change hands on an average day.
NASDAQ: NVDA
Key Data Points
Should you be worried about Nvidia stock?
Rather than fixate on Jensen Huang's recent stock sales, investors are better off heeding his recent comments on the company, which show that demand for its products is still soaring.
At the Goldman Sachs Communacopia conference last week, Huang was asked what he was worried about and said that Nvidia chips are in such high demand that it's "really emotional for people because it directly affects their revenues, it directly affects their competitiveness." In other words, demand is still significantly exceeding supply, and the company is working hard to rectify that.
Nvidia expects to see revenue grow again in the third quarter, forecasting sequential revenue growth of 8%, though it typically beats its own estimates. Additionally, Nvidia's customers continue to tout their eagerness to invest in more AI infrastructure -- spending money on Nvidia components.
If Huang was dumping all of his Nvidia stock, it would be deserving of scrutiny. However, in the current environment, selling a small percentage of his holdings seems meaningless.
That doesn't mean that Nvidia stock will keep going up. The stock is likely to remain volatile, but Huang's stock sales aren't the sell signal that some investors might think they are.
