Is the AI boom in US stocks starting to ebb? Retail investors are turning away from AI

Author: Cao Zexi

On Wednesday, July 12, Goldman Sachs trader Bobby Molavi devoted a paragraph to talking about artificial intelligence in his weekly US stock analysis article:

No week goes by without AI being mentioned, but AI-related headlines seem to be dwindling, and so is the focus on AI. The ups and downs of related concept stocks have gradually returned to normal.

According to Similarweb, ChatGPT’s website traffic dropped 9.7 percent from May to June, the first monthly traffic drop since the revolutionary artificial intelligence portal gained widespread attention last November.

ChatGPT’s visitor engagement is also slipping. Sameweb has not yet shown the data for June, but in May it has dropped by 8.5% from the previous month.

Analysts at Sameweb said:

In June, ChatGPT’s traffic and engagement finally started to drop after months of staggering growth. Before that, the chatbot added 100 million users in its first few months of operation.

Gary Marcus, professor emeritus of psychology and neuroscience at New York University, believes that it is only a matter of time before users realize that current generative artificial intelligence is not that smart:

The intelligence of artificial intelligence has been greatly exaggerated, and while we can eventually achieve this goal, we are still far from this goal at present. There is no doubt that generative artificial intelligence tools are having a significant impact on our lives, both positive and negative. They generate some quality content, but also misinformation. In general, the intelligence of artificial intelligence has been exaggerated. We are still far from achieving general artificial intelligence. Those who believe that general artificial intelligence is on the horizon are almost certainly wrong.

Worse, Marcus warns, his biggest concern is that we are shifting enormous power, in subtle ways we may not realize, to the few companies that currently control AI.

Retail investors also seem to be aware of the problems with the AI boom. As written in the latest weekly report from strategy and macro research firm Vanda Research, retail investors continue to aggressively chase the broader U.S. stock market rally, also via stock ETFs — suggesting they’re bullish not just on specific themes, but on U.S. stocks as a whole. stock market. at the same time:

We’re also starting to see some signs of a shift away from AI stocks and into other stocks like EVs.

According to Vanda, monthly net inflows into U.S. equities are now averaging $1.4 billion per day, close to the all-time record of $1.5 billion per day set in March last year.

A closer look at money flows reveals “some early signs of sector rotation”. Specifically, Vanda states:

Retail investors often engage in sector rotation in the short term. The recent delivery of electric vehicle companies such as Tesla exceeded expectations, which has become a catalyst for capital flow to this sector. In fact, Tesla has seen a lot of inflows and has been the most popular stock among retail investors. And, other less popular EV stocks like Rivian are just starting to bounce back, in part due to the rotation of popular artificial intelligence stocks – stocks that have been on the rise for weeks and thus might be considered less interesting.

The demand for artificial intelligence concept stocks itself is also slowing down. For example, retail investors’ demand for chip stocks AMD, which is not an AI concept stock, is increasing, not Nvidia. Vanda believes:

For AMD, retail demand could have more room to strengthen going forward, and as long as institutional investors don’t aggressively start shorting the chipmaker, the stock could outperform its peers as a result.

At the same time, Vanda has noticed that retail demand for other most popular artificial intelligence products such as C3.ai is also weakening. The agency warned:

Once the upward momentum of such stocks stalls for a considerable period of time, institutional investors may aggressively short this stock or similar AI companies and trigger a quick and sharp sell-off.