When key insiders buy shares of their company, they’re probably confident about its future. Sure, that confidence could be misplaced. However, most investors see insider buying as a positive sign.
But it can be a much different story when key insiders sell shares. In some cases, such moves could hint that they aren’t optimistic about the stock’s future — at least over the near term.
That leads me to Nvidia (NASDAQ: NVDA). The stock has been on a roll, skyrocketing more than seven times over the last three years and soaring more than 160% so far in 2024. However, Insiders are selling their shares of Nvidia. Should you?
Selling away
Since the beginning of May, 10 Form 144 filings have been reported by Nvidia to the U.S. Securities and Exchange Commission (SEC). There are two important things to know about Form 144. First, it’s a notice of the proposed sale of securities. Second, it’s only used when there’s a planned sale of 5,000 or more shares or an aggregate amount of over $50,000.
The most prominent person selling Nvidia stock is the company’s CEO, Jensen Huang. Nvidia notified the SEC that Huang planned to sell 120,000 shares on June 13, 2024. At the market close on that date, this transaction would have been worth around $15.5 million.
Huang wasn’t the only Nvidia executive selling shares. Executive vice president of operations Deborah Shoquist sold 41,140 shares worth more than $45 million on June 3, 2024.
Several members of Nvidia’s board of directors also got in on the action. Dawn Hudson sold a total of 25,000 shares on three separate occasions since May 29, 2024. Board members Tench Coxe, John Dabiri, Michael McCaffery, Brooke Seawell, and Mark Stevens also sold some of their Nvidia shares in recent weeks.
More to the story
These insider sales could be alarming to some investors. To use an old saying: Are the rats fleeing a sinking ship? Nope. There’s more to the story.
The shares Huang sold were part of his executive compensation package. Specifically, they were restricted stock units (RSU) and performance stock units (PSU). Company CEOs frequently sell such shares when they’re allowed to do so.
Importantly, Huang owned nearly 93.5 million shares of Nvidia as of March 25, 2024. That’s almost 3.8% of the company’s outstanding shares. His recent sales were only a drop in the bucket compared to his total holdings. Huang still has plenty of skin in the game.
Most of the other sales (including the ones by Shoquist and several board members) were also of restricted stock units. Investors shouldn’t be too concerned about these transactions.
Should you sell Nvidia stock?
I don’t think the recent insider sales of Nvidia are a reason for outsiders to sell the stock. However, there could be some reasons for you to consider selling.
Nvidia’s jaw-dropping gains might have caused the stock to make up a worrisome percentage of your overall portfolio. Some investors might want to trim their positions as a result.
My colleague Sean Williams predicts that Nvidia stock is poised to plunge by at least 50%. If you agree with his rationale, selling soon makes sense.
However, Nvidia’s underlying business remains strong. The company continues to execute exceptionally well. The demand for its graphics processing units isn’t waning. Those are great reasons to hang on to a stock.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $808,105!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 10, 2024
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Insiders Are Selling Nvidia Stock. Should You? was originally published by The Motley Fool
