The dumb money poured into Nvidia ahead of its results. It could've been worse.

By Steve Goldstein

Retail investors - known pejoratively as the 'dumb money' on Wall Street - loaded up on Nvidia ahead of the microchip maker's poorly received results.

Analysis from both JPMorgan and Vanda Research shows that mom-and-pop investors loaded up not just on the stock of the graphics chipmaker, but also exchange-traded funds where Nvidia is highly represented, and leveraged ETFs tied to Nvidia.

Nvidia (NVDA) did deliver in its quarterly financials, beating analyst estimates on earnings and sales, but it gave enough caution about the future that shares of the company at the forefront of the AI revolution dropped 4% to $120 in early premarket trade.

The VanEck Semiconductor ETF SMH, whose top holding is Nvidia, fell over 1%.

The GraniteShares 2x Long NVDA Daily ETF NVDL slumped 9%, and the Direxion Daily NVDA Bull 2X Shares NVDU also fell 9%.

It was, to be fair, not a disastrous trade for the retail crowd, who bought aggressively after the stock pulled back in July.

The cost basis for the retail investors who bought since July 11 was $115, according to Vanda, which means most investors who poured into the stock ahead of its fiscal second-quarter results are still profitable on their investment.

But their behavior contrasts with professional investors. Hedge funds had trimmed their Magnificent 7, and Nvidia, exposure from their first-quarter peak, according to JPMorgan.

Active equity mutual fund managers also have been underweight Nvidia, JPMorgan said.

The Vanda analysts compared retail behavior before Nvidia's second-quarter results to how retail investors poured into Tesla (TSLA) ahead of its annual general meeting in 2023.

"Back then, for every dollar that mom-and-pop traders put in the markets, approx. 30c was going into TSLA alone - what's happening to NVDA lately is reminiscent of those days. Importantly, following the (underwhelming) AGM meeting, it took two months for TSLA to digest the crowding from retail investors before shares resumed their climb," said a note from Marco Iachini and Lucas Mantle.

-Steve Goldstein

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08-29-24 0427ET

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