Nvidia (NASDAQ: NVDA), truly a force to be reckoned with, has been the golden child of the stock market as of late. Witness its meteoric rise of 800% within the mere span of two years.
However, recent high-profile sell-offs of Nvidia shares by wealthy individuals, including company insiders, have cast a shadow of doubt over its meteoric trajectory. Adding to this unease is a critical issue that investors should not overlook.
Image source: Getty Images.
Wealthy Investors Ditch Nvidia
First and foremost, let’s delve into two key aspects:
- Identifying the billionaires parting ways with Nvidia stock.
- Quantifying their stock dispositions.
Naturally, numerous billionaires hold Nvidia shares, but only a select few are mandated to reveal their stock transactions. For the purposes of this exploration, we will focus on company insiders – executives or individuals owning over 10% of shares.
Let’s narrow in on two prominent company insiders: Jensen Huang, Nvidia’s CEO, and founder, and Mark Stevens, a member of Nvidia’s board. Huang’s net worth exceeds $100 billion, while Stevens’ stands at over $8 billion. In the current year, Huang and Stevens have collectively shed $731 million in Nvidia stock – Huang divesting $366 million and Stevens offloading $365 million.
Despite the enormity of these sales, it’s crucial to contextualize. For instance, Huang possesses over 800 million Nvidia shares, valued at more than $100 billion, as of the latest available data. Stevens, on the other hand, owns nearly 39 million Nvidia shares, approximating $5 billion in worth.
Viewed from this standpoint, neither individual is recklessly abandoning their Nvidia holdings. Instead, they are selling minute fragments of their sizable portfolios. Stevens has let go of 0.7% of his shares this year, whereas Huang has relinquished just 0.3%.
Furthermore, there exist myriad reasons prompting insiders to offload shares, including diversification, philanthropy, personal expenditures, and extraneous business ventures. Hence, investors should interpret insider sales judiciously, recognizing that while they can at times be notable, they often necessitate a deeper grasp of the underlying context.
Evaluating Nvidia’s Market Value Precariously
Determining a stock’s true worth mandates a comprehensive assessment far beyond its price tag. This involves considering pivotal facets such as outstanding shares and the company’s fundamental financial robustness.
Hence, valuation metrics like the price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio play a pivotal role in enabling a comparative analysis of two or more stocks, permitting investors to make meaningful parallels.
For Nvidia, the quandary lies in the assessment of its present P/S ratio. Upon scrutinization, it becomes evident that the stock is perched at an untenable altitude.
Herein lies Nvidia’s P/S ratio trajectory from its initial public offering (IPO) back in 1999:
The Tale of Nvidia’s Price-to-Sales Ratio and Stock Evaluation
Analyzing Nvidia’s Price-to-Sales Ratio
Investors have been keeping a watchful eye on Nvidia as its Price-to-Sales (P/S) ratio hits a current level of 37 times, significantly higher than its historical average of 8 times. This substantial deviation raises red flags when compared to other tech giants.
Comparing Nvidia to Microsoft
Microsoft, with its stock riding high on the AI wave, boasts a P/S ratio of 14 times. While this figure is nearly double its historical average, it pales in comparison to Nvidia’s valuation. Microsoft’s own historical P/S ratio soared to 30 times during the dot-com bubble, where it witnessed a subsequent 65% drop post-bubble burst.
The Valuation Conundrum
Although concerns loom over Nvidia’s insider selling activities, the primary focus remains on the company’s lofty valuation. While Nvidia’s revenue growth might alleviate some valuation pressures, the underlying risks still suggest the stock could be overpriced, potentially triggering a pull-back if sales fail to meet inflated expectations.
Should you invest $1,000 in Nvidia right now?
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