Retail investors—often referred to disparagingly as “dumb money” on Wall Street—heavily invested in Nvidia ahead of the company’s lackluster earnings report.Analysis from JPMorgan and Vanda Research reveals that these individual investors not only bought Nvidia stock but also invested in exchange-traded funds (ETFs) where Nvidia is a major holding, as well as in leveraged ETFs linked to the company’s performance.Nvidia did deliver better-than-expected quarterly financials,
surpassing analyst estimates in both earnings and sales. However, the company’s cautious outlook led to a 4% drop in its shares to $120 during early premarket trading. The VanEck Semiconductor ETF, where Nvidia is the top holding, fell over 1%, while the GraniteShares 2x Long NVDA Daily ETF and the Direxion Daily NVDA Bull 2X Shares both dropped by 9%.Despite these declines, the move wasn’t entirely unfavorable for retail investors who had been buying aggressively since Nvidia’s stock pulled back in July.
According to Vanda Research, the average cost basis for retail investors who bought Nvidia since July 11 was $115, meaning that most of those who invested before the company’s fiscal second-quarter results remain profitable.This retail behavior stands in contrast to that of professional investors. Hedge funds had already reduced their exposure to Nvidia and the other members of the “Magnificent 7” from their first-quarter peak, according to JPMorgan. Active equity mutual fund managers were also underweight on Nvidia, JPMorgan reported.
Vanda analysts compared the recent surge in retail investment in Nvidia to the pattern seen before Tesla’s annual general meeting in 2023, when around 30% of every dollar retail investors put into the market went into Tesla. After Tesla’s underwhelming AGM, it took two months for the stock to recover from the influx of retail investors before shares resumed their climb—a pattern that could repeat with Nvidia.