Stocks led the market up this year, and indeed for the past two years, already Nvidia (NASDAQ: NVDA)which briefly became the most valuable company in the world in June before falling back to close to third place.
As the stock made new highs, Nvidia CEO Jensen Huang, along with other Nvidia insiders, sold off large amounts of stock in June â and have continued to sell this month. So how are Nvidia shareholders now taking the sale, and should they be worried?
$169 million to Huang, $700 million to other insiders
In June, Huang sold 1.3 million Nvidia shares, bringing $169 million to his personal fortune. The June sale was Huangâs first of the year. In addition, another insider sold $700 million worth of stock.
Not only that, but since the calendar turned to July, Huang has sold another 480,000 shares worth a little over $60 million, bringing the total of 2024 sales to approximately 1.78 million shares worth $230 million.
Itâs a lot of money. But why should Nvidia investors be worried?
Why Nvidia shareholders shouldnât worry about stock sales
The sale in itself should not be a concern for shareholders. After all, Huang still owned more than 934 million shares (split-adjusted) as of early June. That means June and July sales are only equal to 0.2% of total holdings!
So while the sales are huge in dollars, they donât have to worry about Huangâs total worth. In fact, given Nvidiaâs meteoric rise over the past 18 months, one might have expected Huang to cash in. apart.
Furthermore, Huangâs sales have come as a result of the 10b5-1 trading program. This is a type of program that executives often do with brokerage houses to sell shares of company stock, up to a certain amount and at a predetermined level. Often, there is a delay between when the executive announces the program and when the brokerage house starts trading the stock. In this case, Huang actually adopted the 10b5-1 program on March 14th, exactly three months before the first sale on June 13th.
The plan is scheduled to run until March 2025 and may have an upper limit of 6 million shares. So even after all the June and July sales so far, there are still a majority of the plan sales. Even if the entire plan is sold until March 2025, the amount is still less than 0.65% of Huangâs ownership stake.
But there are other valid concerns about Nvidia stock right now
While Jensen Huangâs stock sale is certainly not a reason to panic and sell Nvidia stock, there are some risks that shareholders should be aware of.
First, it is likely that AI investment will not keep pace. In recent days, there have been reports suggesting the pace of AI spending may be slowing down. At the end of June, Goldman Sachsâ Head of equity research Jim Covello issued a note saying that the AI ââspending boom has a lot in common with the dot-com bubble.
Specifically, Covello does not believe that the AI ââuse case will generate the profits or cost savings that justify the current level of investment. He believes that investors are forcing companies to invest in or experiment with AI with âunclearâ uses for AI technology today.
In addition, at the same time, a partner at the famous venture capital firm Sequoia wrote a blog post stating that he also does not believe that the cloud and software giant will generate enough additional AI revenue to justify this level of investment.
Aside from AI use cases, there are also competitive concerns, especially since Nvidia is currently generating very high profits. Not just competition Advanced Micro Devices (NASDAQ: AMD) and Intel (NASDAQ: INTC) is coming out with new AI chips and open-source software to try to break Nvidiaâs CUDA software moat, but every cloud giant out there is also now making its own cheap AI accelerators.
But Nvidia can still defy skeptics
It should be noted that other economists are not pessimistic about AI. In fact, another Goldman analyst, senior economist Joseph Briggs, disagrees with Covello, and believes AI-related cost savings and revenue will be higher than Covelloâs forecast as the technology improves.
Furthermore, Nvidia has a strong first-mover advantage that should still give it a large market share of AI computing, which should lead to the growth of even more competitors coming onto the scene. Of course, if AI investments generate returns for downstream companies.
All in all, Huangâs stock sale is not a reason to worry about Nvidia stock. But the proliferation of AI use cases is uncertain and the coming competition.
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Billy Duberstein and/or his clients have positions in Intel. The Motley Fool has positions and recommends Advanced Micro Devices, Goldman Sachs Group, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 Intel calls and short August 2024 $35 Intel calls. The Motley Fool has a disclosure policy.
Nvidia CEO Jensen Huang Sells $169 Million in Stock During the First Half of 2024. Time to Worry? this was originally published by The Motley Fool
