Insiders are selling big tech stocks, but investors should think twice about doing the same.
The insiders, all of whom have been in position for years, most for at least 10 and some for over 20, not only benefit from share-based compensation but have experienced significant gains over the past few years.
Stocks like NVIDIA (NASDAQ: NVDA), Meta Platforms (NASDAQ: META), Advanced Micro Devices (NASDAQ: AMD), and Palantir (NASDAQ: PLTR) are up triple digits in that time, quadruple over the longer term, and they are likely to continue moving higher as the year progresses. These moves can create practical reasons for insiders to sell: locking in their profits, reallocating portfolios, and paying taxes.
But should investors follow in their footsteps? Here are three reasons they shouldn't.
Reason #1: The AI Buildout Theme Has Not Fully Played Out
The AI bubble, which is driving their businesses and stock prices, is far from over.
The worst-case scenario is that phase one—the build-out phase—hit a hiccup when demand overwhelmed NVIDIA’s GPU supply, but we are on the cusp of moving past that bottleneck.
In the interim, spending is spilling over into adjacent verticals, as newly minted GPU owners now need connectors, control units, sensors, and actuators, along with the racks to house them, the data centers to shelter them, the cooling systems to prolong longevity, and all the wires and optics needed to connect them. And that’s not counting the infrastructure needed to take AI out of the datacenters and put it to work.
In this scenario, Advanced Micro Devices’ launch of MI450 products and Helios rack-scale solutions unleashes pent-up datacenter demand and spending, driving the entire complex higher by year’s end and over time. NVIDIA and AMD GPUs are built on different architectures and use different manufacturing and advanced packaging solutions, so they face different hurdles. AMD will surely hit a capacity wall in its ability to deliver GPUs, but it will take a few quarters at least to hit it.
Reason #2: Institutions Are Accumulating Big Tech
While insiders, ranging from CEOs to CFOs, and their boards of directors are selling shares, institutions are buying them.
Institutional activity varies by stock, but InsiderTrades data show institutions buying NVIDIA and AMD at robust paces, in the $2 or $3-to-$1 ranges, and the same trend in names like Meta Platforms and Palantir.
Neither Meta Platforms nor Palantir is involved in GPU production, nor are they what you could call an AI infrastructure stock, but both are critical to the AI trade, representing the monetization of AI and the potential it brings.
Meta Platforms is among the earliest non-infrastructure stocks to go all-in on AI, ramping spending several times since 2022, and showing results each time within a matter of quarters. The visible results are increased traffic, increased engagement and improved ad metrics, specifically in the number of ads shown and the revenue each generates.
Palantir is another example of AI’s monetization, enabling governments and organizations to visualize large, complex data sets and make actionable decisions from them. The once-panned name is now a focus of attention, with institutions buying stock at a $3-to-$1 pace over the trailing-12-months (TTM) leading into May and ramping activity sequentially.
Reason #3: Analyst Upgrades, Earnings Catalysts, and Chart Strength Are Lining Up
Analysts' trends are equally bullish and, knowing they preach to a choir of institutions, are leading the market to even higher levels.
The data reveals coverage rising on a TTM basis, sentiment firming, and price targets increasing, which is a triple-tailwind for price action. The net result is that the Moderate Buy ratings have robustly bullish biases, verging on Strong Buys, with price target trends leading to the high-end ranges. This means fresh all-time highs for the Magnificent Seven and names like Advanced Micro Devices are on track for trillion-dollar valuations.
In addition, the charts are very bullish for these stocks. The few that haven’t already broken out to new highs are in rebound mode, having established a support basis, and are on track to do so later this year.
The likely catalysts are upcoming earnings reports, with many of the Mag Seven expected to outperform their consensus estimates and provide bullish guidance updates.
Of the four stocks listed here, Advanced Micro Devices stands to make the largest move by year’s end. Its revenue growth will accelerate into the triple-digit range, potentially in Q3 but certainly by Q1 of the following year, as its business surges to NVIDIA-like proportions. In this scenario, its stock price can rise by 8x to 10x as it catches up to NVIDIA’s valuation.
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The article "Insiders Are Selling Big Tech, But Here Are 3 Reasons You May Not Want To" first appeared on MarketBeat.
