The market is struggling to shake fears that the AI trade has gone too far. That’s hurt retail investors recently.
Tesla stock didn’t get a boost from stronger-than-expected earnings posted by Nvidia on Wednesday evening. That was a surprise. Initially, investors reacted with relief to Nvidia’s earnings.
Nvidia’s stock traded as high as $196 on Thursday before declining to $180.64, down 3.2%. Tesla shares traded as high as $428.94 before closing at $395.04, down 2.2%.
Tesla stock fell 1% on Friday, closing at $391.09, while the S&P 500 and Dow Jones Industrial Average gained 1% and 1.1%, respectively.
The recent declines appear to have hurt smaller so-called retail investors the most, instead of institutional money managers running mutual funds and the like.
This week, “retail investors rotated out of Health Care, Industrials, and Staples, funneling funds into Consumer Discretionary (driven by Tesla) and Communications (Netflix, Alphabet),” wrote J.P. Morgan strategist Arun Jain in a recent report. They were also buying Nvidia stock “every day this week, ahead of its earnings,” he noted.
Jain tracks what retail investors are buying and selling. It’s one piece of information that helps explain investor sentiment. Retail investors have been “buying the dip” this year, he added, piling into winners after declines.
It’s been a winning strategy so far in 2025, but it hasn’t helped recently, especially after Thursday’s big reversal. Thursday trading left Tesla stock down about 13% month to date and Nvidia stock off about 11%.
Retail investors can console themselves by remembering that Nvidia stock was still up 35% year to date, through Thursday trading. Tesla stock was down about 2% year to date, not great, but it was up about 84% from the 52-week low reached in April.
Why Nvidia and Tesla shares are treated similarly by retail investors isn’t hard to figure out. They are both Magnificent Seven stocks and part of the AI trade driving the stock market.
Of course, they are a little different. Nvidia makes the hardware and software enabling AI computing. Its shares trade for about 25 times estimated 2026 earnings, according to FactSet. Hyperscalers such as Amazon, Microsoft, Alphabet, and Meta Platforms are building data centers for AI computing. They trade for an average of about 25 times earnings.
Tesla stock trades for roughly 180 times estimated 2026 earnings. It’s building AI applications with AI computing. Earnings from its AI-trained self-driving cars and robots haven’t materialized yet.
Comments