Billionaires Can't Stop Selling Nvidia. But There's Something Else That Investors Need to Know.

Nvidia (NASDAQ: NVDA) , undeniably, has been the standout stock of the year. Its dominance in the stock market extends even further, with a staggering 800% surge in its stock price in less than two years.

Yet , recent sales by billionaires -- including company insiders -- have many investors on edge. Moreover, there is an additional factor, which is flashing warning signs for Nvidia.

So, let's dive in and see what's going on with Wall Street's hottest stock.

Image source: Getty Images.

Billionaires are bailing on Nvidia

First, let's get a handle on two things:

1. Which billionaires are selling Nvidia stock.
2. How much stock they're selling.

Obviously, there are many billionaires who own Nvidia stock, but there are only a select number who are forced to disclose their stock purchases and sales. For the purposes of this article, I'll cover billionaires that are company insiders (defined as company officers or those with over 10% beneficial ownership).

Let's focus on two billionaire company insiders: Jensen Huang (Nvidia's CEO and founder) and Mark Stevens (Nvidia board member). Huang's net worth is estimated at over $100 billion; Stevens' is estimated at over $8 billion. So far this year, Huang and Stevens sold a combined $731 million in Nvidia stock -- Huang sold $366 million worth of stock; Stevens sold $365 million.

Even though these are massive stock sales, they must be put into context. Huang, for example, owns more than 800 million shares of Nvidia stock, worth over $100 billion as of this writing. Stevens owns nearly 39 million shares of Nvidia, which are worth close to $5 billion.

So, from that standpoint, neither one is dumping Nvidia shares hand over fist. Rather , they have sold very small portions of their massive holdings. Stevens sold 0.7% of his stock this year, while Huang has sold even less -- only 0.3%.

What's more, there are many reasons insiders sell stock. For example:

• Portfolio diversification.
• Charitable giving.
• Personal expenses.
• Outside business projects.

Investors should approach insider sales with caution, understanding that they can sometimes be significant but often require a deeper understanding of the context .

In any event, there is another factor regarding Nvidia stock that investors should be paying attention to.

Nvidia's stock valuation is reaching precarious heights

To properly value a stock, investors have to examine more than just its price. That's because the price investors pay for a stock doesn't take into account important factors such as the number of shares outstanding or the underlying financial health of the company .

That's why valuation metrics like the price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio are critical when attempting to compare two or more stocks. They allow investors to make apples-to-apples comparisons.

The problem for Nvidia is that by examining its current P/S ratio, for example, it's clear that the stock is trading at an unsustainable level.

Here is Nvidia's P/S ratio dating back to its initial public offering (IPO) in 1999:

NVDA PS Ratio data by YCharts

Its current level (37 times) is nearly 500% greater than its lifetime average (8 times). That's troubling in and of itself, but the concerns grow when comparing Nvidia to other tech stocks.

Microsoft is another company whose stock price benefited as the AI revolution has taken off. However, its stock trades with a P/S ratio of 14 times. And while that is almost double its historical average (8 times), it's still well below Nvidia's. Moreover, when examining Microsoft's lifetime P/S ratio, you do see a period when its stock traded with a sky-high P/S ratio of 30 times. That was during the lead-up to the dot-com stock bubble of 2001. And remember, following that bubble, Microsoft's stock dropped 65%.

NVDA PS Ratio data by YCharts

In summary, Nvidia's insider selling may be a red herring. However, the stock's lofty valuation should give investors pause. While the company's surging revenue could help moderate its valuation, risks remain that the stock is overpriced at current levels and could experience a pull-back -- particularly if actual sales fall short of heightened expectations.

Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .