Chief executive officer of Nvidia (NASDAQ:NVDA), Jensen Huang, unloaded nearly $169 million of NVDA stock in June, representing his biggest share sale to date. While Nvidia is certainly trading closer to its fair value than it has been, Huang’s share sale hasn’t convinced me to offload any of my own shares. I remain bullish on Nvidia, given its dominant position serving the booming data center and artificial intelligence (AI) market.
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Nvidia CEO’s Share Sale
Huang’s sale of 1.3 million shares in Nvidia came in a month — June — when the company’s market value rose above $3 trillion for the first time — Nvidia briefly became the world’s most valuable company. Huang’s personal fortune now exceeds $100 billion.
The CEO isn’t the only one cashing in. Company executives and insiders sold more than $700 million in shares in the first half of the year. This is far greater than insider sales during any other part of the company’s history.
Huang has sold more than $1.1 billion of the stock since the start of 2020, and filings suggest he plans to continue selling shares this month. However, Huang remains the second-largest shareholder in Nvidia after iShares, with 3.52% of the total share count. His 865 million shares are worth a little over $108 billion.
Is Nvidia Stock Becoming Less Attractive?
Insider sales can set off alarm bells for investors, but it’s not always the case. On some occasions, insiders and company executives may sell shares for reasons unrelated to the company’s health or future prospects. These reasons can include personal financial needs, tax planning, or portfolio diversification.
It’s important for investors to consider the context and timing of these sales, as well as the overall pattern of insider trading activity. Following the surge in Nvidia shares over the past 18 months, insiders may be looking to mitigate against concentration risk in their own portfolios. However, a prolonged selling pattern certainly deserves greater scrutiny.
Nonetheless, I still believe Nvidia remains an attractive investment. The caveat is that it is likely trading closer to its fair value than it has been.
Nvidia’s dominance in the booming AI and data center segment is key to its attractiveness as an investment. This dominance stems from its cutting-edge GPUs, such as the A100 and H100, that have proven crucial for AI model training and data center operations. Moreover, Nvidia continues to innovate at a rapid pace, introducing the Grace Hopper superchips and the Blackwell architecture.
This has left its peers Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD) scrambling for market share in the AI sector. Both companies are investing heavily in developing competitive AI technologies and exploring new strategies to close the gap with Nvidia. Intel and AMD are focusing on AI-capable PCs and AI accelerators to challenge Nvidia’s supremacy in the rapidly growing AI segment.
As it stands, Nvidia has somewhere in the region of 70% and 95% of the market share for AI chips, according to an estimate from Mizuho Securities. This market share has led to strong pricing power and a 78% gross margin. This is a particularly high number for a company that’s making hardware and physically shipping it to customers.
Diving Into Nvidia’s Valuation
Nvidia certainly doesn’t look cheap on near-term earnings metrics. The stock trades at 70x TTM non-GAAP earnings and 46.4x non-GAAP forward earnings. Further, its forward price-to-sales ratio is a whopping 25.7x.
Of course, as with any growth-oriented stock, the value is in the forecasting. Nvidia’s earnings are expected to be propelled from $2.71 per share in 2024 to $7.01 by the end of the decade. In turn, this gives us a forward price-to-earnings ratio of 18.2x for Fiscal 2030 (ending January 2030).
Its forward price-to-earnings-to-growth (PEG) ratio sits at 1.42x, which actually places it among the cheapest of the Magnificent Seven. According to forecasts, Nvidia offers stronger growth than any of the other Magnificent Seven stocks.
Is Nvidia Stock a Buy, According to Analysts?
On TipRanks, NVDA comes in as a Strong Buy based on 37 Buys, four Holds, and zero Sell ratings assigned by analysts in the past three months. The average Nvidia stock price target is $136.49, implying 6.5% upside potential.
The Bottom Line on Nvidia Stock
Nvidia stock continues to represent one of the most exciting investment opportunities within the technology space, with strong margins, strong cash flows, and a clear technological lead. Its dominance in this growing market is reflected by its earnings forecast.
While some investors may balk at a stock trading at 46.4x forward earnings, there is little reason to discount the expected growth from this sector. Unlike the dot-com boom, there appears to be real long-term demand for this hardware.
Moreover, with one of the cheapest PEG ratios of the Magnificent Seven, it’s very hard to overlook Nvidia. That’s why I’m still bullish on the stock.
