Retail trading volumes in artificial intelligence-related companies NVIDIA NASDAQ:NVDA and Advanced Micro Devices NASDAQ:AMD have seen renewed interest in May 2023. Trading activity in NVIDIA and AMD reached an all-time record high last month, after growing at one of the fastest rates on record so far this year, according to CFD broker Capital.com.
According to data from the broker, retail trading volumes in Contracts for Difference (CFDs) — a financial derivative that allows traders to speculate on a financial market without owning the underlying asset — on NVIDIA shares increased by more than 214% in May while the number of new traders taking positions in NVIDIA increased by 87% over the same period.
Trading volumes in NVIDIA have grown at a rate of over 260% since the beginning of the year. Meanwhile, total CFD trades on AMD shares climbed by 378% in May 2023 vs April 2023. Both NVIDIA and AMD are companies involved in making chips that support Artificial Intelligence (AI) infrastructure.
According to Daniela Hathorn, Senior Market Analyst at Capital.com, the highly disruptive nature of AI is causing a rush to buy stocks that invest in the technology.
“The likes of NVIDIA and AMD have surged over 20% over the last two weeks as the market frenzy has taken over the semiconductor industry, as they play a crucial role in the computing power behind AI,” she explained. “It all began with blowout earnings from multinational tech company NVIDIA on May 24th and its hype around artificial intelligence. The ball has now started rolling and this may lead to valuable partnerships for smaller companies like AMD from the tech elites, which would strengthen the valuation of its stock and keep the momentum higher.”
Despite the growing appetite for AI-related tech stock, traders should exercise caution in case valuations run ahead of fundamentals.
“But the rapid rise in NVIDIA stock may bring investors flashbacks to what happened with TESLA back in the day when it hit the $1 trillion market cap mark, at which point the company was trading with excessive price-to-sales and price-to-earnings ratios,” Hathorn said. “We know that from then the company shed a big part of its value, but it still remains one of the most traded stocks on a daily basis, which makes us wonder whether the same will happen to NVIDIA.”
