This summer, an average of $14 million worth of NVIDIA shares were sold every day! Jensen Huang's record reduction in holdings raises concerns about corporate governance

NVIDIA CEO Jensen Huang has been serving the company for over 30 years, but only in the past year or so has he truly "gone viral," being referred to as the "Taylor Swift of the tech world" by Meta's CEO Mark Zuckerberg. With his newfound fame, Jensen Huang has also faced more scrutiny. Some experts suspect that while NVIDIA's stock price has soared, the company's management may not have matured as rapidly, as evidenced by Jensen Huang's continuous selling of NVIDIA shares this year.

According to Wall Street CN, in June and July this year, Jensen Huang set personal records for monthly stock sales, selling nearly $170 million worth of NVIDIA shares in June and another $323 million worth in July, totaling around $500 million in NVIDIA shares over the two months.

From the disclosed stock selling situation, during this summer, Jensen Huang has been selling NVIDIA shares at an average daily rate of around $14 million, while still holding over 3.5% of the shares. This has raised questions as to why Jensen Huang is selling shares instead of holding onto them, leading to another question: why did Jensen Huang initially hold so many shares, and whether NVIDIA's compensation plan can motivate him to achieve the performance desired by shareholders.

Corporate governance experts hope that NVIDIA will make its corporate governance more transparent, open up its CEO succession plan, and make changes to its compensation structure to motivate the next generation of management team.

Multiple Executives' Selling Plans Make Investors Uneasy

Jensen Huang's stock selling plan was announced as early as March this year, when NVIDIA mentioned in its quarterly financial report that Jensen Huang would sell up to 600,000 shares of stock by the end of March 2025 through a 10b5-1 stock selling plan. Market analysts point out that the stocks Jensen Huang has since sold are part of his executive compensation plan, including restricted stock units (RSUs) and performance stock units (PSUs), which is a common practice for CEOs under certain conditions.

As of August 5, the black Monday, NVIDIA's stock price had fallen by 14% in the first three trading days of the month. Some analysts believe that Jensen Huang's timing for cashing out was just right before the sharp drop in NVIDIA's stock price earlier this month, hitting the "sweet spot" of the last surge in chip stocks.

Jensen Huang is selling according to the 10b5-1 plan, so there is no need to worry about insider trading. However, the fact remains that he chose to sell shares after NVIDIA's stock price had experienced a period of rise and fall. Nell Minow, Vice Chair of ValueEdge Advisors, a corporate governance expert, believes that this is not a good sign.

Minow, who also holds NVIDIA shares as a shareholder, explained that she hopes executives have a very positive outlook on the company's stock, always thinking that the stock will quickly increase in market value, rather than thinking it's best to sell some because they are afraid of putting all their eggs in one basket. "I hope they put all their eggs in one basket."

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Like Jensen Huang, several other executives at NVIDIA have disclosed 10b5-1 stock sale plans, including COO Debora Shoquist, CFO Colette M. Kress, and Global Field Operations EVP Ajay K. Puri.

Minow believes that this signal makes investors worry whether they should also sell their holdings. Are these NVIDIA executives selling shares signaling something to everyone? If they lack confidence, why shouldn't I sell?

Does Jensen Huang have too many shares?

According to NVIDIA's filings, for the 2024 fiscal year, Jensen Huang's base salary is $996,514, stock awards worth $26 million, additional incentive cash compensation of $4 million, with total annual compensation of about $34.17 million. Before starting to sell in the spring of this year, Jensen Huang held over 93 million shares of NVIDIA, accounting for 3.79% of the company's total shares.

Minow believes that this shows Jensen Huang has received too many shares. These shares should be "handcuffed" and locked up, meaning they should only be sold a few years after he leaves the company. Therefore, Minow suggests that NVIDIA should not award Jensen Huang more shares. "He obviously has too many shares, so he wants to sell them. The marginal value of additional stock grants is negligible."

According to NVIDIA's filings with the SEC, the company has a performance-based compensation strategy based on company revenue, operating profit, and shareholder returns relative to the S&P 500 index. Minow believes that more details should be disclosed, and the board should set very specific goals around market share, innovation, expansion, and operational improvement, and let the market know the specific targets. This will help investors judge whether they want to participate in decision-making.

CEO Succession Issue

Minow believes that NVIDIA's board still has room for further improvement. Currently, among NVIDIA's 12 directors, only one publicly mentions experience in corporate governance on their resume. Minow hopes to see NVIDIA disclose plans for CEO successors to the market as part of the company's to-do list.

Minow explains that NVIDIA's board is very strong in technology but not as strong in corporate governance. She hopes to see NVIDIA demonstrate a process to ensure the company nurtures top talent and has a deep talent pool. The board does not need to mention Jensen Huang by name but must candidly state the value Jensen Huang demonstrates and express a strong emphasis on being prepared for his potential decision to spend his own money.

Minow evaluates that Jensen Huang is a key figure at NVIDIA, and his reputation is almost as important as the quality of the company's products. How can the company keep him motivated when Jensen Huang is already the 15th richest person globally? "Certainly not by allowing him to diversify assets. I would give him more cash compensation and tie it to very specific, quantifiable goals."

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