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For the better part of the last four years, no catalyst has played a bigger role in lifting the broader market than the evolution of artificial intelligence (AI). Whether it's AI-accelerating hardware or AI applications, an IDC report pegs this cumulative addressable opportunity at $22.5 trillion from 2025 to 2031.
Few companies have taken the AI bull by the horns more than Nvidia (NASDAQ:NVDA), Palantir Technologies (NASDAQ:PLTR), and Tesla (NASDAQ:TSLA).
Missed AI's "Act 1"? Act 2 Could Be 16x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
Nvidia's graphics processing units (GPUs) are the infrastructure backbone of AI-accelerated data centers. None of its competitors are particularly close to matching the compute capabilities of its multiple generations of GPUs.
Meanwhile, AI-driven software-as-a-service provider Palantir is a veritable blueprint for deploying AI applications. The company's Gotham platform assists the U.S. military with planning and overseeing missions.
Electric-vehicle maker Tesla is also an AI applications maven. AI is integral to the success of its full self-driving software and its Optimus humanoid robots.
While this trio has thrived amid the AI infrastructure build-out, the individuals who know these companies best are sending all the wrong signals to Wall Street.
Though stock market analysts spend day after day studying the same industry and the companies that define it, no one understands Nvidia, Palantir, and Tesla better than their respective 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 nonpublic information. Anytime an insider buys or sells their company's stock, they're legally required to file Form 4 with regulators within two business days. This allows investors to track whether a company's insiders have been buying or selling.
In the case of this powerhouse AI trio, insiders have been undeniable net sellers of their company's stock over the trailing five years:
Nvidia: $6,860,636,476 in net selling
Palantir: $6,371,606,538 in net selling
Tesla: $39,479,555,646 in net selling
Collectively, insiders at these companies have sold more than $52.7 billion more of their own company's stock than they've purchased since early November 2021.
There is, however, an asterisk that should accompany the above data. Since high-ranking executives and board members are often compensated in stock or options, they're required to sell some of their holdings to cover their federal and/or state tax liability. In other words, insider selling isn't automatically a bad thing -- especially if it's for tax purposes.
What's equally unnerving, from an investment standpoint, is the relative lack of insider buying. With the exception of one sizable purchase totaling nearly $1 billion by Tesla CEO Elon Musk, insider buying has been practically nonexistent in this trio over the trailing five years:
Nvidia: $250,000 in insider buying
Palantir: $7,837,856 in insider buying
Tesla: $1,000,984,274 in insider buying
If insiders aren't buying, historical precedent might explain why.
For more than 30 years, every game-changing innovation has navigated an early-innings bubble-bursting event. This includes the internet, 3D printing, blockchain technology, and the metaverse.
The reason these bubbles form and subsequently burst is that investors consistently overestimate the pace of optimization for game-changing technologies. While AI solutions have been welcomed with open arms, we're likely several years away from businesses optimizing these solutions to boost sales and profits. In other words, the door is wide open for a potential AI bubble-bursting event.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.
Nvidia, Palantir, and Tesla Are Sending Shockwaves Through Wall Street With This $53 Billion Warning was originally published by The Motley Fool
