Nvidia’s CEO sold more than $700 million in stock. Should you follow suit?

Nvidia (NVDA -1.02%) CEO and founder Jensen Huang has been steadily selling some of his shares for months. Even though Nvidia has hit some highs over the past few months, he has continued to sell, which could lead some people to believe that because Nvidia insiders are selling, they know the business is at a peak.

So with the boss dumping stocks, should you follow suit? Or is something else going on here?

Just because a CEO sells a stock doesn’t mean the company is doomed

First, let’s remember one fact: these CEOs are human. They are not robots, so they also have needs and wants. What are some reasons you might sell stocks? You might want to buy a car, invest in something else, buy a house, or pay for a child’s tuition. Or, maybe you’re nearing retirement and want to have a larger cash balance to be more conservative. Whatever the reason, there are plenty of reasons to sell a stock.

Another reason to sell could be underlying issues that only the CEO knows about. This would also be a red flag, but would likely also be accompanied by other insider selling.

When an insider starts selling, it can be seen as noise rather than a signal because we don’t know why Huang is selling. But because Huang sold 120,000 shares every trading day from June 13 through at least mid-September, it’s pretty obvious that these are all planned sales and an effort to not overburden his personal finances with Nvidia’s stock performance . During the sale period, Huang sold nearly 6 million Nvidia shares, which are valued at about $700 million at current prices.

That’s a lot of stock, but it’s only a fraction of what Jensen Huang actually owns.

As of March 25, 2024, Huang owned approximately 93.5 million shares of Nvidia. While that’s an out-of-date figure because part of his salary is stock options, it indicates to investors that Huang isn’t very concerned about Nvidia’s future; otherwise, they would sell one lot more stock.

But should investors learn some lessons here?

Individual investors also have reasons to sell

Nvidia stock has been on a monster run for nearly two years. As a result, it can be a large part of your portfolio. So, the question arises: when is it time to take profits?

If you lose sleep, are in a bad mood on down market days, or obsess over Nvidia’s stock price every morning when the market opens, it may be wise to sell some shares to reduce your focus.

Furthermore, Nvidia is known to be cyclical. It has gone through boom and bust cycles before, although it has never experienced as much of a boom as its current state. While there doesn’t seem to be any sign that Nvidia will slow down, demand will in the end decreases, which could lead to a decrease in price.

NVDA Revenue (TTM) data by YCharts

Ultimately, the numbers in your brokerage account mean nothing until you sell. So until you lock in some winnings, all the profits you think you’ve made are only on paper.

You probably have massive profits if you invested in Nvidia in 2023 or 2024. It’s time to take stock and maybe follow Huang’s lead and sell some of the position to make sure you’re not too leveraged by Nvidia.

Investing in artificial intelligence is a massive field and there are plenty of other great opportunities available in the market right now.