Retail Investors Are Buying AI Stocks, But Not the Ones They Used To
The AI trade is back on after April’s tariff rout, but retail investor purchases suggest it’s taking a new shape.
After a surge in dip buying following April’s “Liberation Day” tariff announcement, “there’s been a clear shift away from Mag 7+ names” into “second-derivative AI laggards and other higher-risk opportunities,” according to a recent analysis of retail investor flows by Marco Iachini and Lucas Mantle at Vanda Research.
Nvidia (NVDA), a favorite among retail investors over the last few years, saw large outflows starting in mid-May after shares jumped on easing tensions between the U.S. and China. Purchases of leveraged ETFs, which double or triple Nvidia’s daily return, slumped to a 1-year low last month, “though options activity shows no signs of bearish positioning,” according to Vanda. “We interpret this as classic profit-taking.”
Most of the Magnificent Seven stocks are down since the start of the year, but nearly the entire group has sharply rebounded from early April’s tariff panic. Retail investors who bought the dip are likely locking in profits from these “core portfolio holdings.”
Retail Investors Piling Into Applied Digital, CoreWeave
While investors are pivoting from the Magnificent Seven, they’re not abandoning the AI trade. Rather, investors are piling into smaller data center stocks like Applied Digital (APLD), Navitas Semiconductor (NVTS), and CoreWeave (CRWV), all of which are affiliated with Nvidia. Retail investor purchases of each increased by more than 150% over the past month.
Mom-and-pop traders have also been big buyers of quantum computing stocks, a reflection of their substantial risk appetite. In the last week of May, retail investors bought more D-Wave Quantum (QBTS), with its $6 billion market cap, than they did UnitedHealth Group (UNH), a $275 billion company. In the time that investors bought a net $17 million of Meta (META) stock, they funneled $25 million into Rigetti Computing (RGTI).
Iachini and Mantle note it’s common for retail investors to venture into riskier corners of the market after a successful bout of dip-buying. But plenty of uncertainty about tariff policy and the economic outlook remain despite the market’s recent rebound.
Retail investors taking on more risk recently, “while not unusual, suggests a level of complacency that may be mismatched with still-lingering macro risks and thus adds to our sense that we are living in the final innings of the current equity rally,” they wrote.
The market’s risk appetite was on full display Monday, with the small-cap Russell 2000 and tech-heavy Nasdaq leading U.S. stock indexes higher. Shares of Navitas Semiconductor were up nearly 25% in recent trading, while CoreWeave advanced 15%.