Nvidia’s CEO just sold $78 million worth of his company’s stock. Here’s what investors need to know.

Nvidia (NVDA -0.03%) the stock has sent investors on a wild ride so far in 2024. It was trading at a split-adjusted share price of about $48 at the start of the year. The price reached as high as $140.76 at one point in mid-June, then fell to $99 in early August before recovering enough to trade around $130 per share by mid-August. It then fell 21% in a few weeks to trade around $103 in early September, before recovering somewhat last week and now trading around $118.

Phew. A wild ride indeed.

It’s somewhat understandable, of course. As the centerpiece of the artificial intelligence (AI) boom, Nvidia carries a lot on its shoulders, and expectations are sky high for this tech stock. Even after beating consensus estimates in its latest earnings report, the stock price continued to decline. Apparently, Wall Street felt it didn’t beat their estimates enough. While the stock’s price trajectory is currently rising, investors are hyper-attuned to its performance and any indicating where it can go.

Therefore, it may interest investors that Nvidia CEO Jensen Huang has sold some of his Nvidia holdings. In the past month alone, Huang sold 720,000 shares worth a total of about $78 million.

What does Nvidia’s boss unload shares mean?

This latest sale is not his first cashing in on the stock. Since early July, Huang has sold more than 4 million shares worth about $500 million. At first glance, this could be seen as a sign that the person who knows the business most intimately believes that the share price will fall (or that trouble is ahead). But a closer look shows that it is not. Although I cannot know Huang’s exact thinking, there is no reason to take these sales as a cause for concern.

The simpler explanation comes down to the cost of living. The vast majority of Huang’s net worth is tied up in Nvidia stock. Unfortunately, you can’t buy a hamburger (or super yacht) with stock — at least not easily. Cash is king, as they say. It’s far more likely that Huang is simply liquidating a small portion of his massive net worth — valued at about $100 billion today — to have some cash on hand.

The Securities and Exchange Commission (SEC) has rules regarding directors’ buying and selling of their own company stock. To avoid any suspicion of insider trading (as well as to eliminate potential public panic about the transactions), SEC Rule 10b5-1 allows directors to issue public plans that describe predetermined automated stock transactions managed by a neutral entity. While it may seem like Huang just sold this stock, he actually decided to do so months ago and did so in a way that suggests he had very little influence on the price.

Tracking insider trading can be exciting, but more often than not it means a lot less than it might seem at first.

Nvidia is moving forward

As for the future performance of Nvidia stock, the path forward has become much more complicated, but I still think it is in a strong position. The company’s most recent quarterly earnings report showed continued growth — doubling its revenue year over year. The thing for investors to keep in mind is that the major turning point for Nvidia was the second quarter of last year, so it’s only natural that the year-over-year growth was down a bit from the 200%-plus growth that I saw her in the last three quarters. Check out the revenue explosion in 2023 in this chart below.

NVDA Revenue Data (Quarterly) by YCharts.

While there was some concern that Nvidia could maintain growth, many of the fears people had didn’t materialize. Concerns about Nvidia delaying delivery of its latest generation of superchips have been overblown, and demand for its current generation remains extremely strong. The growing concerns about a lack of real value for AI that could hurt Nvidia’s customers and reduce their spending have yet to materialize. Companies like Amazon, Meta platformsand Alphabet they’re still locked in an AI arms race, and most expect to increase spending, not decrease it.

There might even be more customers around the corner. Although Nvidia’s data center revenue is heavily concentrated in big tech, we could soon see a broader set of commercial customers and even governments begin to invest in earnest. This would be an advantage for Nvidia. Government contracts can be a highly profitable source of income, and one that changes slowly once the relationship is formalized, providing an added level of stability.

Finally, the company’s push into the automotive industry is only now intensifying. In the short term, AI-powered infotainment and safety features will generate revenue, but further on the horizon lies the real prize: self-driving cars.