Retail Investors Shift Focus: Tesla Takes the Lead Over Nvidia
Roughly three decades ago, the internet began going mainstream, democratizing access to information and online trading for everyday investors. Investors no longer had to wait for public companies to mail their annual reports; instead, they could access income statements, balance sheets, and presentations at the click of a button.
Not surprisingly, retail investors now form a larger percentage of total trading volume on Wall Street. While institutional and high-frequency trading still dominates the market, the opinions and actions of retail investors regarding equities are becoming increasingly significant.
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Robinhood’s Top Holdings Reflect Retail Investor Sentiment
Online brokerage Robinhood has historically catered to everyday investors. It offers continuous updates on the 100 most-held securities, creating a power ranking of stocks and ETFs that resonate with its users.
In mid-March, artificial intelligence (AI) leader Nvidia (NASDAQ: NVDA) briefly became the most-held stock on Robinhood. Recently, however, it lost its top spot to a market-leading enterprise that a notable money manager predicts could yield a remarkable 900% return in four years.
Nvidia’s Rapid Climb and Recent Decline
Nvidia’s brief surge to the number one position was fueled by recent investor enthusiasm surrounding AI. Everyday investors were drawn in by the success of Nvidia’s Hopper (H100) graphics processing units (GPUs) and the next-generation Blackwell GPU architecture, which have become key components in AI-powered data centers.
These GPUs enable rapid decision-making and are crucial for training large language models. Consequently, businesses are investing heavily in Nvidia’s technology, which has contributed to the stock’s significant appreciation.
Additionally, it’s worth noting that Nvidia holds a competitive edge over other AI-GPU producers in terms of computing speed. As long as the demand for AI-GPUs exceeds supply, Nvidia is likely to maintain substantial pricing power.
However, Nvidia’s recent drop to third place on Robinhood’s leaderboard reflects broader market concerns. Historically, many game-changing technologies have experienced bubbles that lead to inflated expectations. There is currently no evidence to suggest that AI stocks will be exempt from this trend. Should the AI bubble burst, Nvidia’s stock could face significant challenges.
Rapidly increasing competition constitutes another headwind for Nvidia. In addition to emerging competitors, many of Nvidia’s major clients are investing in their own AI chip development for use in data centers—resulting in backlogs and considerable cost savings compared to Nvidia’s offerings. This could ultimately erode Nvidia’s gross margin.
Image source: Tesla.
Tesla Emerges as Retail Investors’ Top Choice
The stock that has now outperformed Nvidia is electric vehicle (EV) manufacturer Tesla (NASDAQ: TSLA). Ark Invest’s Cathie Wood predicts Tesla’s stock may soar to $2,600 per share by 2029, implying an approximate 903% increase from its value at the end of the first quarter.
Retail enthusiasm for Tesla can be attributed to several factors. First, Tesla is benefiting from first-mover advantages in the EV sector, being the leading producer in North America. With five consecutive years of profitable operations under generally accepted accounting principles (GAAP), Tesla has proven its business model.
Second, Tesla is diversifying beyond EV production to enhance its profit margins and reduce cyclical exposure. Demand has surged for its energy generation and storage segment, which promises more stable sales regardless of economic conditions. Notably, this segment offers higher profit margins when compared to its electric vehicle sales.
Lastly, CEO Elon Musk’s vision captivates retail investors. Musk has committed to introducing robotaxis by June 2025 and believes his company’s Optimus robot represents a vast market opportunity. Wood’s aggressive $2,600 price target relies heavily on projected exponential growth in sales and earnings before interest, taxes, depreciation, and amortization (EBITDA) tied to robotaxis.
However, skepticism surrounds Tesla and Wood’s ambitious targets, as Musk has historically struggled with delivering on his grand projections. For instance, he once claimed that a million robotaxis would be operational by now, a promise yet to materialize.
Tesla Faces Headwinds as Robotaxi Hopes Fall Short in 2025
In 2025, we find ourselves discussing Tesla’s yet-to-launch paid robotaxi program in Austin, Texas, expected by June. This comes in stark contrast to Elon Musk’s past predictions that the company would achieve Level 5 full self-driving capabilities by 2020. Despite over a decade of promises, Tesla remains at Level 2 autonomy. If we subtract the ambitious, yet unproven, projections like robotaxis and the Optimus initiative from Tesla’s valuation, the stock could see a significant decline in value.
Musk’s focus on various ventures, including his collaboration with President Donald Trump, has contributed to a sluggish pace in delivering key innovations. In addition, Tesla’s first-mover advantages in the electric vehicle (EV) market are increasingly threatened by rising competition. This pressure has led North America’s leading EV manufacturer to implement price cuts on multiple occasions to manage growing inventory. As a result, despite its efforts, Tesla’s inventory levels have risen, causing a notable drop in vehicle margins.
Despite regaining traction as retail investors’ top choice on platforms like Robinhood, a scenario exists where this leading holding might significantly underperform in the future.
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*Stock Advisor returns as of April 1, 2025
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
