Nvidia, Palantir, and Alphabet Are Sending Shockwaves Through Wall Street With This $17.5 Billion Warning

Three decades ago, the advent and proliferation of the internet lit a fire under Wall Street's major indexes. Today, the artificial intelligence (AI) infrastructure build-out is stoking the same enthusiasm and fueling a multitrillion-dollar addressable opportunity.

Though dozens of tech-driven companies are benefiting from the AI revolution, Nvidia (NASDAQ:NVDA), Palantir Technologies (NASDAQ:PLTR), and Google parent Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) are at the forefront of this game-changing technology.

Nvidia's graphics processing units hold a virtual monopoly in AI-accelerated data centers, making it one of the most widely held stocks among retail investors.

Image source: Getty Images.

Meanwhile, Palantir and Alphabet are titans in the AI applications space. Palantir's AI-driven software-as-a-service platform, Gotham, is critical for overseeing military operations for the U.S. and its allies. As for Alphabet, sales growth for its cloud infrastructure services platform, Google Cloud, has gone parabolic since integrating generative AI and large language model capabilities.

While everything appears to be going swimmingly for this trio of AI powerhouses, the individuals who know them best are sending a far different message to Wall Street.

Nvidia's, Palantir's, and Alphabet's insiders are rattling Wall Street

Despite Wall Street analysts spending countless hours analyzing AI spending trends, no one understands Nvidia, Palantir, and Alphabet better than their respective insiders.

An "insider" is a high-ranking executive, board member, or beneficial owner holding at least 10% of a company's outstanding shares who may possess non-public information. Insiders are required to file Form 4 with regulators no later than two business days after transacting in their company's stock. This is done to comply with securities law and to provide transparency to investors.

Over the trailing five years, the overwhelming majority of Form 4 filings by Nvidia's, Palantir's, and Alphabet's insiders involve selling:

• Nvidia: $6,862,723,289 in net-selling activity
• Palantir: $6,514,528,061 in net-selling activity
• Alphabet: $4,150,615,765 in net-selling activity

On a combined basis, insiders have dumped approximately $17.5 billion more of their company's stock than they've purchased since the start of October 2021.

However (and this is an important "however"), insiders are commonly compensated with stock and/or option contracts, which require them to sell a portion of what they receive to cover their federal and/or state tax liability. Tax-based selling isn't something that should worry everyday investors.

But the other side of this coin, insider buying, is just as telling. Insider purchases have been underwhelming over the trailing five years:

• Nvidia: $250,000 in insider purchases
• Palantir: $7,837,856 in insider purchases
• Alphabet: $95,045,005 in insider purchases

While there are several reasons to sell shares of a company, not all of which are nefarious, there's only one reason to buy: the expectation of share-price appreciation. If insiders aren't buying, you have to wonder, "Why?"

Valuation may be one answer. Though Nvidia and Alphabet aren't egregiously pricey, Palantir is trading at a price-to-sales (P/S) ratio of almost 80. History shows that no P/S ratio above 30 has been sustainable over the long term.

Additionally, history says that every game-changing innovation endures an early-innings bubble-bursting event. These bubbles form and subsequently burst because investors constantly overestimate the pace of optimization of new technologies. While AI adoption hasn't been an issue, it'll likely take years for businesses to optimize AI solutions to maximize sales and profits. This leaves the door wide open for an AI bubble-bursting event.

Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.