AI Becomes a "Ghost Story," but U.S. Retail Investors Turn "Ghostbusters": Doubling Down on the Dip!
Where the sell-off is fiercest, aggressive U.S. retail investors—driven by the "YOLO" (You Only Live Once) mentality—seem to be charging in the fastest.
According to data compiled by J.P. Morgan, while the S&P 1500 Software & Services Index has plummeted nearly 20% since the start of the year, retail trading activity in the sector is approaching record levels.
JPM strategist Arun Jain noted that although "cracks continue to appear in certain pockets of the market," retail investors remain "supportive of the software industry."
Retail Favorites: Catching the Falling Knives
Data shows that Microsoft (MSFT), the worst performer among the "Magnificent Seven" this year, was the top pick for retail investors last week and leads the pack in year-to-date position increases. ServiceNow and AppLovin have also attracted significant retail interest.
This buying spree comes as software stocks take a hit. Following the release of new AI products by various firms, investors fear these innovations could displace legacy services from companies like Salesforce and Adobe.
The panic intensified Monday following a jarring "AI Ghost Story" report from Citrini Research, which suggested AI could trigger widespread economic upheaval. Nassim Taleb, author of *The Black Swan*, also warned of an impending wave of bankruptcies within the software industry.
Defying the Fear
Despite the grim forecasts, retail investors have consistently stepped in as buyers during sell-offs, a move that has bolstered the confidence of some market veterans. Marshall Front, CIO at Front Barnett Associates, remarked, "In our view, the sell-off in software stocks is clearly overdone, and we believe current valuations are attractive."
Notably, on Thursday—as NVIDIA's post-earnings plunge rattled the tech sector—the software industry significantly outperformed semiconductors, marking one of its largest relative gains in nearly a decade.
Record Buying in NVIDIA
Retail investors also showed intense interest in NVIDIA during its slump. According to VandaTrack Research, despite NVIDIA's 5.5% drop on Thursday—its worst single-day performance since April 2025—the session saw a record proportion of retail dip-buying.
In the first 80 minutes of trading, retail net buying of single stocks (including NVIDIA) reached $360 million, already surpassing the previous day's total of $336 million. "Bottom-fishing" was also prominent in Broadcom, the iShares Expanded Tech-Software Sector ETF (IGV), and the iShares Semiconductor ETF (SOXX). Vanda Research noted that retail investors are currently engaged in their largest buying streak in months.
A Value Play Amid the Noise?
Analysts suggest that in a market where every minor AI development causes professional investors to flinch, retail traders may be sniffing out value.
Walter Todd, CIO at Greenwood Capital Associates, stated, "Given the indiscriminate nature of the selling we’ve seen, this may be an opportune time to find value." While the long-term outlook for software firms remains murky, Todd believes betting on a short-term recovery is more straightforward: "These stocks have been sold off for weeks and months; it’s easy to envision at least some short-term bounce."