Jensen Huang Told Investors to "Buy at a Discount" on June 8. History Says This Is How Often CEOs Who Publicly Call the Bottom Are Actually Right.

Key Points

• Jensen Huang sees better times ahead for Nvidia.

• CEOs like Jamie Dimon and Elon Musk have made similar projections that have paid off.

• Nvidia will report earnings on Wednesday, and revenue is set to double.

• 10 stocks we like better than Nvidia ›

Nvidia (NASDAQ: NVDA) CEO Jensen Huang is known for his ability to see the future, but a recent prediction he made may be one of his most important ever, at least from an investor perspective.

Huang told investors to buy the stock on June 8 at a conference in Seoul, South Korea, saying, “We’re at the beginning of it, and whatever happened to the stock market, you should be very happy because now you can buy at a discount.”

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Nvidia had pulled back around 10% from its all-time high a few weeks earlier, but thus far, that prediction has not paid off as Nvidia is essentially flat since then.

However, that’s not a reason to give up on Huang or the world’s most valuable, but his comment does raise the question of whether a CEO should be trusted when they urge investors to buy their company’s stock or when they buy it themselves.

Image source: Nvidia.

What history says about CEO predictions

There’s no strict data set that shows how stocks have performed after comments like Huang’s above. However, there is some evidence that these kinds of predictions are correlated positively with outperformance over the long term.

According to one study, stocks that are heavily purchased by their own CEOs have outperformed the broad market by 4%-6% over the next 12 months.

Some of the most admired CEOs have also made insider purchases that have portended long-term gains in their stocks.

For example, Jamie Dimon bought 500,000 shares of JPMorgan Chase stock in early 2016 when bank stocks were falling due to a collapse in oil prices and weakness in China. The move helped spark a recovery in the financial sector, marked the bottom in JPMorgan Chase stock, and kicked off a sustained bull run in the stock. Since then, the stock is up roughly 500% and has returned nearly 700% on a total-return basis.

SoFi CEO Anthony Noto bought $5 million of his company’s stock at under $5 share in late 2022 after it had plunged during the 2022 bear market. Though the stock didn’t immediately respond to the purchase, it began climbing through 2023 and reached a peak above $30 late last year.

Finally, Elon Musk purchased $20 million of Tesla stock in late 2018 when he said the company was in “production hell.” Tesla would slide through mid-2019, but then skyrocketed through 2020, jumping more than 1,000%.

However, not every CEO endorsement leads to success. Wirecard CEO Markus Braun purchased company stock to help defend the company against allegations of accounting fraud, but the ploy ultimately failed, and Wirecard went bankrupt.

More recently, The Trade Desk CEO Jeff Green bought $150 million worth of the stock in early March, though the adtech stock has continued to slide, falling nearly 50% since then.

What it means for investors

Of the CEOs above, two of them are among the most admired in business: Jamie Dimon and Elon Musk, and Jensen Huang fits into that category as well.

Nvidia has yet to report earnings this quarter, but it will release second-quarter results on Wednesday, and the stock looks ready for another leg up as the valuation looks cheap for its growth rate. Additionally, hyperscaler capex spending continues to move up, favoring Nvidia.

Analysts expect revenue to jump 97% to $92.2 billion and for adjusted earnings per share to double to $2.09.

Nvidia wasn’t trading at a deep discount when Huang made his statement in June, but his past efforts to cheerlead the stock have paid off. This one looks like a good bet to do so as well.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in Nvidia and The Trade Desk. The Motley Fool has positions in and recommends JPMorgan Chase, Nvidia, Tesla, and The Trade Desk. The Motley Fool has a disclosure policy.