After Surging 200% YTD, CEO Dumps Shares – Is This Stock a Buy or Sell?

After Surging 200% YTD, CEO Dumps Shares – Is This Stock a Buy or Sell?

Posted On September 20, 2023 10:01 am

A significant rebound in technology stocks was witnessed in 2023, with the Nasdaq Composite index soaring almost 31% year-to-date. This resurgence can be mainly attributed to the advancements in Artificial Intelligence (AI), notably the advent of large language model-based (LLM) chatbots, which acted as the primary catalyst. The burgeoning excitement around AI has led to the tech-rich Nasdaq surging about 32% during the first six months of the year, marking its best half-year performance since 1983.

The Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) plays an instrumental role in sparking the AI revolution. The company’s Graphic Processing Units (GPUs) are indispensable to Generative AI applications, powering their processing needs.

The company delivered outstanding earnings reports in the past quarters in a tremendous stride fueled by intense demand for AI chips. The surge in tech advancements and AI applications has driven NDVA’s market cap to top $1 trillion.

This notable achievement made it the sixth U.S. company to reach this significant milestone, besides being the inaugural chip manufacturer to enter the prestigious trillion-dollar club.

Owing to its powerful performance, NVDA reported an annual revenue of $4.28 billion in the fiscal year that ended January 27, 2013, which swelled to an impressive $26.97 billion in the fiscal year that ended January 29, 2023. Over the past decade, the chipmaker’s revenue spiraled more than six-fold.

NVDA’s executive, Manuvir Das, predicts a substantial growth opportunity in the AI space. He anticipates a total addressable market of $300 billion in chips and systems, complemented by $150 billion each in generative AI and omniverse enterprise software. This impressive $600 billion market potential in AI and the surging demand for transformative technologies will significantly propel NVDA’s sales and earnings growth.

The company registered remarkable revenue growth with a 22.7% CAGR over the past 10 years. Factors contributing to this rapid acceleration included dominance in PC gaming and professional visualization, along with a tenacious foothold in the data center sector. These sectors jointly accounted for 56% of the company’s total revenue in fiscal 2023.

However, during the same period, the contribution from gaming dwindled from 46% to 34%, and the contribution of the professional visualization segment declined from 8% to 6%.

Shares of NVDA commanded prominent attention from investors, evident from its extraordinary 200% year-to-date surge in stock price. Buoyed by the anticipation that the company will emerge as the chief benefactor of the burgeoning AI revolution, this surge is expected to persist.

Despite these bullish signs, NVDA’s co-founder and CEO Jensen Huang recently undertook an extensive sell-off of his shares in the company, triggering alarm bells for investors. According to Form 4 Filings submitted to the Securities and Exchange Commission (SEC), Mr. Huang unloaded 59,376 shares during trading sessions on September 12 and September 13, translating to a sale of $26.94 million worth of the company’s stock.

Notably, this was not the first instance of such an action by the CEO in recent weeks. Earlier in the month, Mr. Huang divested approximately $42.83 million worth of his shares after exercising his options, amounting to total sales of NVDA shares valued at $112 million thus far. Due to the ongoing correction, the stock has been down about 11% since the beginning of September 2023.

Should Investors Panic?

The CEO’s recently executed large-scale stock divestment has led some analysts to express concerns over NVDA’s stock price stability. The substantial shock to NVDA’s stock value, following his significant share sell-off in January 2022, fuels these apprehensions.

Investor wariness typically escalates when a company’s CEO offloads shares, a gesture often construed as a sign of…

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