Small investors are losing their interest in AI — except for one resilient stock


Vanda Research reports that although the interest of retail investors in artificial intelligence has cooled, not all stocks are feeling it. Marco Iachini is Vanda’s senior Vice President. He said that the decline in interest in AI-related stocks has been most pronounced among small-cap stocks such as is, for instance, up 150% by 2023 but down 34% in the last three months. This fall in fortune comes after AI attracted investor attention and sent Nvidia, and other companies that play on the emerging technology, to record highs. He noted that the fall in popularity also coincides with a general pullback by retail investors. Iachini noted that retail investors’ net purchases of US securities remain low compared to the previous year. This is especially true for AI stocks. Retail interest in these stocks has been declining as the initial excitement surrounding the sector has waned. Iachini noted that the little-known stock IonQ, which is a quantum computing company, has managed to buck this trend. He said the data showed that IonQ was “remarkably resilient”. This resilience, in spite of the rapidly increasing short interest, can be a warning sign of future declines in retail traders’ interest. The simultaneous interest of retail traders as well as those who are looking to short a name can cause supply and demand to be thrown off, which could then lead to a sell-off. IonQ had a great year, despite receiving less attention than other AI companies. The shares have increased by more than 420% in the past year, a sharp rebound from a 2022 decline of almost 80%. The company was listed in October 2021. IONQ ALL Mountain IONQ’s first two years of being a publicly traded company, half the analysts give the stock a “buy” rating, and the other halves have a “hold” rating, according to LSEG (formerly Refinitiv). Analysts expect a drop in the stock price, and a price-target that implies a fall of more than 1% within the next 12 months. Iachini, meanwhile, said that retail traders’ interest in Nvidia is “feeble”, but this lackluster interest will not have a significant impact on the stock. Nvidia is the poster child for the AI investment boom. Investors have cheered the chipmaker for its continued ability to post strong earnings, dispelling fears that technology may be overhyped. The stock has a value of over $1 trillion and is part of an elite group that includes Big Tech stocks. Iachini stated that the short interest in Nvidia declined in conjunction with an increase in stock price. Iachini believes that this suggests that investors are trying cover their short positions, and are unlikely sell the stock soon. He said that a cooling of retail trader demand would not trigger a stock sell-off unless institutional investors also took similar steps. According to LSEG, the overwhelming majority of analysts rates Nvidia as a buy. Analysts do not expect the rally to slow down anytime soon. The average price target suggests that shares could rise by more than 36% in the next year.