Key Points
AI is the largest addressable opportunity in decades, and it's sent shares of Nvidia, Palantir Technologies, Micron Technology, and Broadcom soaring over the trailing three years.
Insiders at these faces of the AI revolution have been decisive net sellers of their company's stock.
Additionally, insider purchasing has been minimal, signaling possible valuation and historical concerns for these AI leaders.
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Investors have been waiting decades for the next technological leap forward to rival what the internet did for corporate America and Wall Street. With an estimated $15.7 trillion global addressable market by 2030, artificial intelligence (AI) has answered the call.
The foundational companies behind the rise of AI have seen their shares skyrocket. Since the start of 2023, Nvidia (NASDAQ: NVDA), Palantir Technologies (NASDAQ: PLTR), Micron Technology (NASDAQ: MU), and Broadcom (NASDAQ: AVGO) have rallied by roughly 1,400%, 2,110%, 1,890%, and 650%, respectively, as of the closing bell on June 4.
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Nvidia's superior graphics processing units make enterprise data centers tick, while high-bandwidth memory supplied by Micron and networking solutions from Broadcom facilitate high-performance computing while minimizing tail latency. As for Palantir, it's the ideal example of AI applications in action via its Gotham and Foundry software-as-a-service platforms.
While these AI juggernauts have, thus far, proved unstoppable, the people who know these companies best are sending all the wrong signals.
Insiders at Nvidia, Palantir, Micron, and Broadcom tell a worrisome tale
Although Wall Street analysts dive deep into what makes businesses tick, arguably, no one knows their company better than insiders. An "insider" is a high-ranking executive, board member, or beneficial owner of at least 10% of a company's outstanding shares who may possess non-public information.
By law, insiders are required to file Form 4 with regulators no later than two business days after trading in their company's stock (including the exercising of option contracts).
While the respective management teams of these AI juggernauts couldn't be more optimistic about the future, their Form 4s tell a different story. Over the trailing three years, insiders at Wall Street's premier AI companies have been decisive net sellers:
- Nvidia: $5,021,601,722 in net selling
- Palantir: $6,036,853,194
- Micron: $365,759,884
- Broadcom: $1,497,603,264
Collectively, insiders at these faces of the AI revolution have dumped nearly $13 billion worth of their company's shares since early June 2023.
The caveat to insider trading data is that not all selling activity is inherently bad. Oftentimes, executives and board members receive a majority of their compensation in stock and/or options, requiring them to sell some of their holdings to cover their federal or state tax liability. Insider selling for tax purposes isn't something investors should fret over.
But the other side of this coin is just as important.
While there are several reasons for an insider to sell shares of their company, there's only one reason for them to buy: the expectation of share price appreciation. Over the same trailing three-year period, these foundational AI companies have seen little in the way of insider buying:
- Nvidia: $250,000 in insider purchases
- Palantir: $7.837,856
- Micron: $7,821,723
- Broadcom: $12,004,239
Historical precedence is one possible reason insiders aren't eager to purchase their own stock. Every game-changing trend since the advent and proliferation of the internet in the mid-1990s has navigated an early innings bubble-bursting event, and AI is unlikely to be an exception to this unwritten rule.
Furthermore, AI stock valuations have catapulted into the stratosphere. Investors are paying close to 67 times trailing 12-month sales for Palantir, when a price-to-sales (P/S) ratio above 30 has historically proved unsustainable.
If insiders aren't buying, why should everyday investors?
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Micron Technology, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
