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If there’s one stock that has defined the rise in artificial intelligence (AI) for the better part of the last two years, it’s Nvidia (NVDA). Jensen Huang’s chip designers (a critical part of the architecture needed for demanding AI computing tasks) have been at the forefront of a technological revolution, whose impact has been felt in both sales and bottom lines over the past year. It’s showing. .
Despite falling more than 5% in Friday trading, NVDA stock is up an impressive 76.5% in 2024. The stock price has easily more than tripled in the past 52 weeks, pushing NVDA’s market cap to over $2 trillion.
Heavy selling by a longtime company insider made headlines last week, amid growing questions about the possibility of an AI bubble and whether breakout stocks like NVDA are overvalued. . But are the insider sales at NVDA a reason for investors to dump the stock? Let’s take a closer look here.
Nvidia Insider Tench Coxe sells stock
The company’s most recent filing with the Securities and Exchange Commission (SEC) revealed that director Tench Cox sold 200,000 shares of the company’s stock for approximately $170 million. Mr. Cox, who has been a director since 1993, acquired these shares in 1997 for the incredible sum of $0.82, two years before the company went public. To put this into context, his Nvidia market cap at the time was less than $1 billion.
Since then, it’s up an impressive 112,911%, and it’s safe to say that the company’s third-largest shareholder has made quite a profit on NVDA stock. It is worth noting that even after this sale, Mr. Cox still owns 0.1515% of the company.
Other longtime insiders also unloaded their NVDA stock in early March. Mark Stevens, a director of the company since 2008, sold 12,000 shares of the company’s stock on March 4 for a total of approximately $10.2 million. Meanwhile, on March 5, Dr. Persis Dorrell, who joined the company’s board of directors in 2015, sold 5,000 shares of NVDA stock worth approximately $4.2 million.
So are these insider sales a reason to panic? Probably not – 5 things investors need to know:
1. Insider selling isn’t always simple. Insider buying can provide a clearer sentiment read, as it is generally accepted that insiders may sell shares for a variety of reasons. Depending on the situation, this could be a red flag. Here are some signs to let investors know when to be wary of heavy insider selling.
2. Why would insiders sell Nvidia? Notably, there have been no insider purchases at NVDA since 2020, and in fact no insider purchases at NVDA since Cox himself bought it in 2004 for approximately $4.8 million. This means that there were no insider purchases of this size. But during this same period, the growth-focused company made payments worth millions of dollars. Stock-based compensation will be reduced, reducing the incentive for this group to purchase his NVDA stock on the open market.
3. The shares were sold through Coxe’s trust. Coxe has been a longtime NVDA insider and holds stock through multiple vehicles, including trusts, profit-sharing plan retirement trusts, and direct holdings. The sale, reported on March 5, left the shares held directly by Mr. Cox intact, and only the shares held through Mr. Cox’s trust were withdrawn.
4. Coxe is a regular NVDA seller. A quick review of insider selling activity at NVDA shows that Coxe has periodically sold large tranches of stock at various prices over the years. The last time headlines about Nvidia insider sales hit the Telegraph was last June, when Mr. Cox sold stock through this same trust for about $422 per share.
5. His direct holdings have increased: Since being sold through his trust in June 2023, Mr. Cox’s direct holdings in Nvidia have actually increased, from 4,578 shares to more than 5,200 shares today. is increasing. Meanwhile, Mr. Cox still owns more than 3 million shares of the company through his trust.
How is NVDA’s performance?
So while insiders can give us little clues, it’s worth considering the fundamentals. And NVIDIA’s consistently strong quarterly performance continued into the fourth quarter, as the company reported massive revenue and profits. Revenue for the quarter was $22.1 billion, an increase of 265% year-over-year and above the consensus estimate of $20.62 billion.
EPS grew even faster, increasing 486.4% year over year to $5.16, comfortably beating the consensus estimate of $4.59. Notably, the company’s EPS have exceeded consensus estimates 9 times over the last 10 quarters.
The company’s asset-light model means its cash position is strong, with cash balances of $26 billion at the end of the fourth quarter of 2023, almost double the $13.3 billion a year ago, and short-term and long-term debt. significantly higher. The levels are $1.25 billion and $8.46 billion, respectively. Net cash from operating activities was $11.5 billion, more than four times the amount from the previous year.
The growth story remains the same
Even after expanding rapidly over the past few years, analysts believe Nvidia’s strong growth will continue. Future earnings growth is pegged at 69.2%, and NVDA’s five-year average pace is 25.1%.
Expected EPS growth for the current quarter is high at an average of 467.1%, with 2025 earnings expected to increase 83.9% to $21.77 per share.
What do analysts expect from NVDA stock?
Overall, analysts remain bullish on NVDA stock, with an average rating of “Strong Buy.” The average price target of $838.93 has already been exceeded, but the high price target of $1,400 suggests around 60% upside potential from current levels.
Of the 39 analysts covering the stock, 34 have a “strong buy” rating, two have a “moderate buy” rating, and three have a “hold” rating.
On the date of publication, Pathikrit Bose did not have (directly or indirectly) any positions in the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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