Insiders Reap Windfall Profits In Nvidia
At face value, insider selling in Nvidia (NASDAQ: NVDA) stock is raising a red flag. Insider selling accelerated over the course of the last 4 quarters reaching a peak in the Q4 or current period. This could be a sign of impending doom for the company, or at least its stock price, but it isn’t for two very important factors. The first is that insider selling in Q4 amounts to less than 0.05% of the shares which is a very negligible amount. Given the fact shares of Nvidia are up more than 6700% on a split-adjusted basis, and were just recently split, we’d be surprised if insiders weren’t taking some money off the table. The more salient fact here is that insiders still hold about 4.5% of the stock.
The second factor mitigating insider selling is institutional buying. Institutional buying has been bullish on balance all year but made a notable spike in Q4. Institutional buying in Q4 picked up from a quarterly average in the range of $2 to $5 billion to over $177 billion. That alone is worth about 20% of the market cap and brings the institutional holdings up to over 65%. Buying was broad-based but there is at least one transaction worthy of note. UBS Asset management increased their holding nearly 400% to 13.108 million shares or roughly 0.5% of the company and there are other large holders upping their positions as well.
Institutions Buy Nvidia Because Of Systemic Demand
If you are wondering why the institutions are buying Nvidia it is because of systemic demand. The global microchip shortage is driving systemic demand for microchips and microchip technology at levels. Nvidia is well-placed as a provider of high-speed chips for gaming, video applications, and data centers and should see its growth continue over the coming quarters. Last quarter the company reported $7.1 billion in net revenue for a gain of 50% over the previous year. The gains were driven by a 42% increase in gaming chips coupled with a 55% increase in data center sales that are expected to remain strong in the current quarter.
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Looking forward, the company is expecting sequential revenue growth in the range of 4.5% and we think the guidance is cautious. Demand for technology remains strong across all channels with a particular focus on cloud computing and data centers and chips are at the heart of it all. In our view, as the supply chain log-jams begin to ease, we see demand accelerating before eventually stabilizing sometime in 2023.
The Analysts Are Pushing Nvidia Shares Higher
The analysts are pushing shares of Nvidia higher and we see this trend continuing well into calendar 2022. The Q3 earnings release itself spurred no less than 15 of the 32 analysts covering the stock to raise their price targets and most of the rest raised theirs before the report was issued. The current consensus is near $332 and implies about 7.25% upside for the stock but there are two details we think are more important. The first is the trend in the consensus estimate which is up. The consensus is up 53% in the last 90 days and 145% over the past year. The second detail is the high price target. The high price target of $400 implies about 30% of upside for the stock and it too is trending higher.
The Technical Outlook: Institutional Buying Supports Nvidia Uptrend
Shares of Nvidia are in a clear uptrend and institutional buying is supporting it. The latest round of buying helped the market confirm support at the $285 level and has the stock moving higher now. The indicators are bullish but consistent with a consolidation that has MACD and stochastic in retreat. The key takeaways here are that convergences in the indicators suggest at least a retest of the recent highs and both indicators are rolling into trend-following signals. In our view, this stock should retest the all-time highs very soon and then break out to new highs soon after.
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