Retail buyers, which are sarcastically called “dumb money” on Wall Street, bought a lot of Nvidia stock before the company’s disappointing earnings report.
JPMorgan and Vanda Research both found that small- and medium-sized buyers put a lot of money into exchange-traded funds (ETFs) that have a lot of Nvidia in them, as well as leveraged ETFs that are linked to Nvidia. On the bright side, Nvidia NVDA -6.38% beat analyst expectations on both earnings and sales in its quarterly report. However, it also raised enough concerns about the future that shares of the AI revolution leader fell 4% to $120 in early premarket trade.
More than 1% of the VanEck Semiconductor ETF SMH -1.24% was lost. Nvidia is one of its chief holdings. Both the GraniteShares 2x Long NVDA Daily ETF (NVDL -12.91%) and the Direxion Daily NVDA Bull 2X Shares (NVDU -12.90%) went down by 9%.
Fair enough, it was not a terrible trade for regular people who bought a lot when the price dropped in July.
Vanda says that the cost base for retail investors who bought since July 11 was $115. This means that most of the investors who bought the stock before it reported its fiscal second-quarter results are still making money on their investment.
But the way they act is different from how professional businessmen act. JPMorgan said that hedge funds had cut their Magnificent 7 and Nvidia holdings from their high point in the first quarter.
Based on what JPMorgan said, active stock mutual fund managers have also been underweight Nvidia.
The Vanda researchers looked at how the public behaved before Nvidia’s second-quarter results and how the public invested in Tesla TSLA 0.26% before its 2023 annual general meeting.
When small-time players put money into the markets back then, about 30c of that dollar went into TSLA alone. What is happening to NVDA lately reminds me of those times. An important fact is that it took two months for TSLA to get used to all the new market investors after the (underwhelming) AGM meeting before shares started to rise again, according to a note from Marco Iachini and Lucas Mantle.
