To The Moon

There's no denying that $NVIDIA Corp(NVDA)$ has been the brightest stock this year. Its dominance of the stock market expanded further, with shares surging a staggering 800% in less than two years. However, the recent sell-off of Nvidia shares by billionaires (including company insiders) has made many investors nervous. In addition, there is an additional factor that is flashing warning signs for Nvidia stock. Obviously, there are a lot of billionaires who own Nvidia stock, but only a few are forced to disclose their stock purchases and sales. Let's focus on two Nvidia insiders: Jen-Hsun Huang (Nvidia's CEO and founder) and Mark Stevens (an Nvidia board member). So far this year, Huang and Stevens have sold a combined $731 million worth of Nvidia stock -- Jensen Huang has sold $366 million worth; Stevens sold $365 million worth of stock. Although these are large share sales, they must be put in context. Huang, for example, owns more than 800 million shares of Nvidia, worth more than $100 billion. Stevens owns nearly 39 million Nvidia shares worth nearly $5 billion. So, from that perspective, neither man is selling Nvidia shares aggressively. Instead, they sold only a fraction of their large holdings. In any case, investors should be aware of another factor regarding Nvidia's stock. To properly value a stock, investors must look at more than just price. When trying to compare two or more stocks, valuation metrics such as price-to-earnings (P/E) and price-to-sales (P/S) are crucial. They allow investors to compare like with like. The problem for Nvidia is that by examining the current price-to-sales ratio, it is clear that the stock is trading at an unsustainable level. Nvidia shares currently trade at 37 times sales, nearly 500% higher than their historical average of 8 times. That in itself is troubling, but the concern becomes even more acute when comparing Nvidia to other tech stocks. $Microsoft(MSFT)$ is another company that has benefited from the rise of the AI revolution. However, the stock trades at 14 times sales. While that's nearly double its historical average of 8 times, it's still well below Nvidia's. Analysts believe the insider selling at Nvidia could be an excuse to divert attention. While the company's growing revenue may help temper the high valuation, the risk remains that the stock is overvalued at current levels and could be due for a pullback.