A.I. Stocks are a Hot Buy this Year with Most Already Doubling in Price

Investing in artificial intelligence stocks, the latest craze to hit Wall Street, is becoming even more popular with retail investors, according to Vanda Research.

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The firm said that aggregate retail investor inflows have reached levels not seen since 2020-2021 in the past five trading days (ending Wednesday). Even so, Vanda senior vice president Marco Iachini wrote in a note Thursday that the purchases were heavily concentrated in a few companies, including AI companies such as Nvidia and C3.ai, among others.

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“FOMO and momentum remain the main drivers of flows, meaning retail investors remain susceptible to negative catalysts. We don't rule out the possibility of speculative activity in AI-related stocks or other niches of the market, should macro conditions remain favorable in the near term," he said.

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Since OpenAI's ChatGPT was launched last year, artificial intelligence (AI) has been gaining momentum in the industry. The software is used by Microsoft to power updates for its Bing search engine and Edge web browser, both of which are backed by billions of dollars of investment by Microsoft. As Microsoft's CEO Satya Nadella told Trade Algo on Tuesday, artificial intelligence is the biggest thing that has happened to the company during his nine years of running it.

"I never felt as liberated in terms of my opportunity in the days ahead as I do today," said Nadella.

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So far this year, Microsoft's share price has risen by about 13%.

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The announcement of Alphabet's own artificial intelligence chatbot, Bard, was also made on Wednesday. Shares of the company fell by 7% for the day on the back of unimpressed investors. As of Thursday, the stock had fallen nearly 4%, but it has risen by nearly 9% since the beginning of the year.

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Here are some of the top artificial intelligence companies that retail investors have piled their money into this past week, according to Vanda Research.

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According to Vanda's data, C3.ai is among the favorites of retail investors, with $83.65 million in inflows over the past five trading days, as shown in the chart above. During the first half of this year, the enterprise AI software stock has been up 132%.

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C3.ai CEO Tom Sieble told Trade Algo on Monday that its generative AI will "fundamentally change the human-computer interaction model" in enterprise applications.

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It is possible that the stock may have passed its near-term peak, according to Iachini.

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“In fact, there has been a slowdown in the pace of purchasing, which usually indicates a loss of price momentum,” he stated.

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As retail investors rotate into other small-cap stocks that are associated with artificial intelligence, the interest in AI is still high, he said.

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A company with a market capitalization of $656 million is BigBear.ai Holdings, which is one of these companies. Through its daily analytics platform, the company integrates AI and machine learning into its business operations. In the year to date, its stock price has risen by an impressive 681%.

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The company SoundHound AI, which has a market cap of $892 million and is up 151% so far this year, is another example.

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Vanda believes that Microsoft and Nvidia, which both already see a growing interest from retail investors, may also see an increase in investments over the next few years.

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Traders may lock in profits or avoid adding further exposure to Tesla, which has also become a favorite among general retail investors if the shares of Tesla continue to move higher.

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“It is likely that investors will increasingly turn to NVDA and MSFT as alternatives as investment options,” he said.