For more than three years, the evolution of artificial intelligence (AI) has been the stock market's leading catalyst. The capacity for software and systems to make split-second decisions without human oversight, and the up to $15.7 trillion global addressable market assigned to AI by PWC analysts by 2030, have investors excited.
Arguably, no two companies have been more direct beneficiaries from the rise of artificial intelligence than the world's largest publicly traded stock, Nvidia (NVDA 1.48%), and data-mining specialist Palantir Technologies (PLTR +1.45%). Since the start of 2023, Nvidia has added over $4.1 trillion in market cap, while Palantir shares have skyrocketed by almost 2,300%!
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Nvidia and Palantir boast sustainable moats in AI
Investors have flocked to both companies because of their well-defined competitive advantages.
Nvidia's graphics processing units (GPUs) have a virtual monopoly in enterprise data centers. External competitors have struggled to keep pace with the compute potential of Hopper (H100), Blackwell, and Blackwell Ultra, leading businesses to form a long queue for Nvidia's AI hardware.
To add fuel to the fire, Nvidia is benefiting from persistent AI GPU scarcity. When you couple seemingly insatiable demand for the company's superior GPUs with limited supply, you get exceptional pricing power and a gross margin that's hovering around 75%.
NASDAQ: PLTR
Key Data Points
Meanwhile, Palantir's two core software-as-a-service platforms (Gotham and Foundry) lack scalable competition. Gotham is used by the U.S. government and its allies to plan and oversee military missions and to gather intelligence, while Foundry streamlines data for businesses to improve operational efficiency.
Since government contracts are multi-year and Foundry is a subscription-based service, Palantir's operating cash flow is highly predictable.
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The people who know Nvidia and Palantir best are sounding a warning
While Nvidia CEO Jensen Huang and Palantir CEO Alex Karp have nothing but praise for their respective companies, their actions, and those of the people who know these two companies best, are sending an unmistakable warning to Wall Street.
Company insiders, including high-ranking executives, board members, and 10% (or greater) beneficial shareholders, may possess non-public information and are, therefore, required to report to regulators anytime they buy or sell any of their company's stock. Over the trailing two-year period, as of March 5, Nvidia's and Palantir's insiders have been decisive net sellers of their respective shares:
- Nvidia: $3,981,108,258 in net selling
- Palantir: $5,668,447,380 in net selling
Collectively, insiders have sold $9,649,555,638 more than they've purchased over the last two years. This includes Palantir Director Peter Thiel's nearly $290 million share sale last week -- the largest-ever insider sale for Palantir.
NASDAQ: NVDA
Key Data Points
The caveat to this selling is that not all stock sales are inherently bad news. Since most executive and board member compensation comes in the form of stock and/or options, insiders may sell from time to time to cover their federal and/or state tax bill. Tax-based selling isn't a worry for investors.
But at the same time, insider buying has been virtually nonexistent. Nvidia's insiders haven't spent a dime buying their stock in years, while Palantir has had a couple of very small insider purchases. This lack of insider buying suggests the people who know Nvidia and Palantir best don't view their stock as a bargain.
If insiders aren't buying, why should retail investors?
