Retail investor interest in artificial intelligence is cooling, but not every stock is feeling the pressure, according to Vanda Research. The slide in interest in stocks tied to AI has been particularly pronounced in small-cap plays such as C3.ai, said Marco Iachini, Vanda’s senior vice president. C3.ai, for example, is up more than 150% in 2023, but it’s off 34% over the past three months. That fall from grace comes after AI captured investor interest and sent Nvidia and other plays on the emerging technology to record highs this year. It also arrives amid a broader pullback among retail investors, he noted. “Retail investors’ net buying of US securities remains low relative to previous years — particularly within the realm of AI stocks, which are witnessing diminishing retail interest as the initial fervor surrounding the sector wanes,” Iachini said. But Iachini said little-known quantum computing stock IonQ has been able to buck the trend. The data shows the stock to be “remarkably resilient,” he added. But that resilience in the face of rapidly growing short interest can be a “cautionary flag” of a future slide in retail trader interest. That’s because the simultaneous interest among both retail traders and those looking to short the name can throw off supply and demand, which can then prompt a sell-off. Despite garnering less attention than better-known AI plays, IonQ has had a banner year. Shares have soared more than 420% this year, rebounding sharply from the 2022 drop of nearly 80%. The company went public in October 2021. IONQ ALL mountain IONQ’s two years as a public company Half of analysts rate the stock a buy, while the other half have hold ratings, according to LSEG, formerly known as Refinitiv. The average analyst sees a pullback ahead, with a price target implying shares could fall more than 1% over the next year. Meanwhile, Iachini said demand is “feeble'” among retail traders for Nvidia, but the lackluster interest likely won’t have significant influence on the stock. Nvidia has become a poster child of the AI investing boom. The chipmaker’s stock has gained about 210% this year as investors cheered its ability to continue posting strong earnings , dispelling concerns that the technology’s effect may be overhyped. It has a market cap of more than $1 trillion, putting the stock in an elite club comprising Big Tech stocks. Short interest in Nvidia has declined, coinciding with a jump in the stock price, Iachini said. To him, that suggests investors are trying to cover their short positions and are unlikely to sell the stock in the near term. A cooling in retail trader demand is unlikely to trigger a sell-off without similar moves from institutional investors, he said. The overwhelming majority of analysts rate Nvidia a buy, according to LSEG. Analysts don’t see the rally losing steam anytime soon, with an average price target implying shares could jump more than 36% over the next year.
