Retail investors, often referred to as “dumb money” on Wall Street, heavily invested in Nvidia ahead of the company’s underwhelming earnings report.
According to analyses from JPMorgan and Vanda Research, these investors not only bought Nvidia stock but also piled into exchange-traded funds (ETFs) with significant Nvidia exposure, including leveraged ETFs linked to the chipmaker.
Although NVDA -2.10% exceeded analysts’ expectations in its quarterly report, cautionary guidance about the future caused its stock to drop 4% to $120 in early premarket trading.
The VanEck Semiconductor ETF SMH -1.68% , which has Nvidia as its largest holding, fell over 1%, while the GraniteShares 2x Long NVDA Daily ETF NVDL -4.26% and the Direxion Daily NVDA Bull 2X Shares NVDU -4.15% both slumped 9%.
Despite the drop, retail investors who bought Nvidia stock after its July pullback fared better than expected. Vanda Research reports that these investors had an average cost basis of $115, meaning most are still in profit despite the recent volatility.
In contrast, professional investors took a different approach. Hedge funds had reduced their exposure to Nvidia and other top tech stocks, known as the “Magnificent 7,” from their first-quarter peak, according to JPMorgan. Active equity mutual fund managers were also underweight in Nvidia.
Vanda analysts drew parallels between this retail behavior and the influx of investments in Tesla TSLA -1.65% before its 2023 annual general meeting. They noted that following Tesla’s disappointing meeting, it took two months for the stock to recover from the retail crowding before resuming its upward trajectory.
