Institutional investors — the so-called smart money — appear to be nibbling on the beat up stock price of Nvidia (NVDA).
Retail purchases of the AI market darling have plunged this month, according to new data from Vanda Research. On Monday, retail investors only purchased a net $34 million in Nvidia's stock based on Vanda's research.
Retail investors have also begun "dumping" positions in the 2X Bull Nvidia ETF.
Yet, Nvidia shares have started to come back up — they are up 5% in February compared to a slight decline for the S&P 500 (^GSPC). The stock is up 13% from its February 3 closing lows.
Shares are still down 2.5% year to date.
"By process of elimination, if retail’s stepping aside, the ‘smart money’ crowd must be behind the latest recovery [in Nvidia]. However, institutional option flows in the name have yet to rebound strongly, which is something that would give us greater confidence around this view," Vanda Research said.
"Still, we believe we can take the above as a vote of confidence by parts of the institutional world in the stock and the sector now that analysts have had time to better digest the potential ramifications of DeepSeek’s launch. The verdict from these latest developments? DeepSeek doesn’t appear to threaten AI’s growth trajectory."
The Nvidia bulls have been dealing with negative sentiment as of late, somewhat a rarity for one of the most popular stocks in the world.
Evercore analyst Mark Lipacis said in a recent note there are three reasons for the weakness: 1) DeepSeek lowering AI demand in aggregate, 2) DeepSeek shifting AI compute cycles away from Nvidia GPUs and to ASICs [custom chips], and 3) Blackwell chip delays.
China-based DeepSeek surprised markets in late January after unveiling RI, its AI model that gives a ChatGPT-esque performance at a cheaper price tag. RI cost a reported $5.6 million to build a base model, compared with the hundreds of millions of dollars incurred at US-based companies such as OpenAI and Anthropic.
Fears mounted instantly that US companies are overspending on AI infrastructure, which includes Nvidia chips.
“Conventional wisdom all of last year was that training amazing models was going to be possible for only a handful of companies,” Snowflake CEO Sridhar Ramaswamy told me on chof360 Finance's Opening Bid podcast (listen below). “What DeepSeek has done over the past few weeks is shatter that belief by saying they can train a model for $6 million.”
The Street has moved to defend Nvidia heading into earnings on Feb. 26, underscoring the view of the smart money rotating into the name.
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"Nvidia remains the platform of choice for hyperscalers’ customers," Lipacis explained. "The robustness of its software ecosystem and breadth of its development community put it 5 to 10 years ahead of anything else in the market. AMD and Amazon AWS ecosystems are a distant #2 and #3."
Bank of America's Vivek Arya reiterated the chipmaker as his top pick for 2025 earlier this month.
Arya has a $190 price target, which assumes about 45% upside from current trading levels. It's one of the highest price targets on Nvidia on the Street.
"The [earnings] call could mark the trough in investor sentiment as: 1) we expect Nvidia to reassure on Blackwell execution, 2) Signal confidence around fiscal year 2026/calendar year 2025 with 60%+ year over year growth in data center sales (still leaves headroom vs. Taiwan Semiconductor's call for AI to grow 100%+ year over year in calendar year 2025 end), and 3) create excitement ahead of flagship GTC Conf. (Mar 17) where focus shifts to solid pipeline (GB300, Rubin), and physical AI (robotics)," Arya wrote in a note to clients.
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So where are retail investors gravitating to if they are exiting Nvidia? Another classic tech momentum name in Palantir (PLTR).
The stock is attracting record retail investor demand, $339 million in the trailing week, says Vanda Research. Interestingly, this is happening despite "relentless insider selling" which is usually a bearish indicator.
chof360 Finance data shows there has been almost 77 million shares sold by Palantir insiders in the past six months.
"For now, retail’s demand has been able to overcome this negative flow dynamic, but should retail disengage even just temporarily, and insiders continue trimming their allocations, that could spell trouble for the stock," Vanda Research notes.
Palantir's stock is up a sizzling 55% year to date.
Brian Sozzi is chof360 Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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