MW Retail investor hype for AI stocks seems to be slowing down
By Gordon Gottsegen
Trading volumes for many AI stocks peaked earlier this year and have fallen dramatically since, report finds
Artificial intelligence has been a dominant theme across the business world and investor portfolios alike in 2024. But as the term "AI bubble" gets tossed around and AI stocks like Nvidia Corp. $(NVDA)$ are up over 160% year to date, it seems like everyday retail investors are losing some of the excitement they had earlier this year.
A recent report by the online brokerage Public found that 51.6% of the retail investors it surveyed were bullish about AI companies and stocks, while only 9.5% were bearish. Despite that, only 30.8% said they planned to invest more heavily in AI this year.
"I think from our standpoint, probably the most surprising thing was how much hype exists for AI, whether it's in the press, daily life [or] what you see on the television. But then when [we] actually ask our members about it, I think they were still a little bit unsure," Sam Nofzinger, general manager of crypto and brokerage at Public, told MarketWatch.
When Public asked its customers why they were interested in investing in AI, the most common response was "new technology excites me." But the second-most common answer was a contrarian one - "I'm not interested."
A potential reason for this disinterest, according to Nofzinger, could have to do with whether retail investors missed that first wave of AI hype earlier this year.
"AI had a really good start to the year, and it was really attractive and really took off. But I think it left a lot of people on the sidelines. A lot of people hadn't jumped in yet at that point, and when they started looking at these AI companies they were already through the moon," Nofzinger said.
"So I think our investors are thinking, 'Did I miss the boat? Am I too late? Maybe I want to see this play out a little bit more before I jump in myself.'"
From July 2024: Despite AI bubble concerns, retail investors still expect tech stocks to beat the market
Public measured how much the monthly trading volume for certain AI-related stocks had grown since October 2023 - before the AI stock rally really took off. It found that trading volumes for Nvidia, Advanced Micro Devices Inc. $(AMD)$, Dell Technologies Inc. $(DELL)$, Intel Corp. $(INTC)$ and Super Micro Computer Inc. $(SMCI)$ began to jump at the end of 2023, peaked in June and July, and then began to fade the following months.
For example, the trading volume for Nvidia was over 11x higher in June 2024 than it was in October 2023. In September 2024, trading volume was only 3.5x higher than October 2023.
Other AI stocks saw even more dramatic swings. AMD's trading volume in July 2024 was over 71x higher than it was in October 2023, then went down to 3x higher in September 2024. Dell's trading volume in June was almost 600x higher than the previous October, before dropping to 49x higher three months later.
These trading volumes remain elevated compared to just a year ago, but the rise and fall of investor activity in these AI stocks was substantial.
But Nofzinger pointed out that a lot of the retail-investor excitement for AI stocks centered around Nvidia, which became the most traded stock on the Public platform this year. Nvidia has traded somewhat flat since it closed at $136.23 on June 18, and since then some retail investors have lost interest.
"I think you're starting to finally see a bit of rotation out of Nvidia, and that's what we've seen over the past four to eight weeks. We have seen net outflows," Nofzinger said.
Is AI still a good investment?
With more of Public's retail investors feeling bullish than bearish about AI, one might wonder if AI is still worth investing in.
Some institutional investors think so.
Fundrise, a platform that allows retail investors to invest in alternative assets like private companies and real estate, forecasts that AI could create a $20 trillion-plus market opportunity. It bases this forecast on analysis of previous technology waves, like the adoption of mobile and cloud technologies.
In a recent note, UBS also said that it still favors AI stocks.
"We continue to favor the semiconductor space and megacaps for AI exposure, and recommend investors consider structured strategies or a buy-the-dip approach for quality AI stocks. For investors willing and able to manage risks such as illiquidity, we see broad-based AI opportunities in private markets with a focus on large language models, software applications and data centers." Solita Marcelli, the chief investment officer Americas of UBS Global Wealth Management, wrote in a note.
Allen Bond, a portfolio manager for Jensen Investment Management, said that he isn't convinced AI is a bubble.
"There may be some pockets of froth, if you will. But the reality is, the companies that are driving this early stage of AI investment - which is training the AI models - are large companies, they are producing a lot of cash flow and they are very strong businesses," Bond told MarketWatch. "So the way we look at it is, we think there are some companies that are current beneficiaries of AI and likely to be future beneficiaries."
So what will it take for retail investors to hop back on the AI train? Nofzinger said that many retail investors are still waiting for some sort of catalyst or use-case to prove AI's importance.
Public's survey found that only 11% of retail investors use AI tools to do investment research. Of those who said they don't, 29% said they don't trust the information provided by AI, while 30% were unaware they could use AI.
But on the flipside, 65% of respondents said that they think generative AI will likely become a standard tool for investors in the future.
Perhaps retail investors are waiting for AI to become more ingrained in their personal lives before they start investing in it again. After all, many retail investors prefer to invest in what they know.
-Gordon Gottsegen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
October 10, 2024 09:00 ET (13:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments