Summary of Key Points
The "Big Seven Tech Stocks" (Microsoft, Apple, Amazon, Meta, Nvidia, Google, Tesla) that American retail investors have feverishly pursued over the past few years are now being neglected by them. Capital inflows have slowed down, and most of these stocks have underperformed the broader market. Instead, retail investors have shifted their funds to AI infrastructure companies (such as those in chip manufacturing, storage, data centers), small and mid-cap AI-related stocks, as well as new sectors like commercial aerospace and quantum computing. It's worth noting that retail investors have not left the market; rather, their trading activity has reached record levels. The shift in investment strategy is from blindly supporting these giants to more carefully identifying emerging stars.
1. Retail Investors and the Big Seven Tech Stocks: From Fanatic Fans to Divorce
Over the past few years, these seven stocks were highly sought after by retail investors. They continued to buy them despite various challenges, including the initial AI boom, the DeepSeek sell-off, and tariff disruptions. However, this year the situation has changed:
- Sharp Decline in Capital Inflows: Vanda data shows a significant slowdown in capital inflows into these stocks. In July, Microsoft, the most favored of the seven, saw only $52 million in net purchases, compared to Intel's $194 million during the same period.
- Most Underperforming Compared to the Market: Apart from Apple (up 23%) and one other stock, all the Big Seven stocks have underperformed the S&P 500. Microsoft has lost the most, with a decline of 19%.
- Direct Reduction in Holdings: For example, 19-year-old student Davis sold all his Nvidia shares and reduced his holdings in Microsoft, arguing that the "wealth-making opportunities associated with these giants have been exhausted."
2. Who Are the New Favorites? AI Infrastructure Companies
Retail investors are no longer focusing on the giants; instead, they are buying the underlying hardware necessary for AI to function. It's like during a gold rush, people stopped digging for gold and started selling shovels and water:
- Chip/Storage Companies: Companies like SK Hynix (a leading chip manufacturer) and Roundhill Memory (an ETF focused on memory stocks) have seen significant gains this year, becoming "dark horses" in retail investors' portfolios.
- Data Centers/Infrastructure: Investors are purchasing data center operators like Equinix, believing that these provide the physical infrastructure for AI applications. They see this as a more tangible investment compared to investing in the companies that use these services.
- Simple Logic: Alex, a software director, explained, "I want to buy the underlying infrastructure that powers AI directly. The giants use AI, but these companies create the tools that make it possible."
3. Changing Investment Logic: From Following Giants to Identifying the Next Superstar
In the past, retail investors might have thought buying large companies was a safe bet. Now, they are actively looking for companies with potential:
- No Longer Blind Buying: Vanda analysts say that investors no longer invest blindly in the Big Seven and are now more selective in their choices.
- Betting on Small and Mid-Cap Companies: They hope to discover the next AI superstars among less well-known firms. For instance, Alex invested most of his money in Micron, a company many didn't know about, and he made a substantial profit.
- Emphasizing Growth Potential: Davis, the student investor, believes that while giants are still good investments, the best opportunities lie in more dynamic and higher-risk sectors like commercial aerospace and quantum computing.
4. Unabated Enthusiasm, Just in Different Sectors: Record Trading Activity
The cooling interest in the Big Seven stocks does not mean that retail investors have stopped trading. On the contrary:
- Record Trading Volumes: Citadel data shows that average daily trading volumes in May and June were more than twice the annual average for 2024, reaching a new high.
- Moving to More Niche Sectors: In addition to AI infrastructure, investors are also investing in commercial aerospace and quantum computing, sectors they see as on the verge of significant growth.
- Analyst Interpretation: eToro analysts suggest that retail investors are simply following where the money is flowing. While the giants were once the focus, the spotlight has now shifted to hardware companies and smaller, more innovative firms.
In One Sentence
American retail investors have shifted from relying on the Big Seven tech stocks to actively seeking out opportunities in the AI era. They haven't left the market; they are just becoming more strategic in finding the next wave of wealth-creating opportunities.