Retail Traders Shift Focus from Meme Stocks to Tesla

Tesla is becoming the top choice for everyday investors this year, surpassing the popularity of meme stocks like GameStop and AMC. While the meme-stock craze has faded, Tesla’s appeal continues to grow in the retail trading community. According to Vanda Research, Tesla has seen a steady increase in inflows from retail traders over the past five years, with the company poised to attract more individual investor dollars than the SPDR S&P 500 ETF Trust.

Tesla Challenges Assumptions About Everyday Investors

Roth MKM analyst Craig Irwin suggests that Tesla’s popularity among everyday investors defies conventional wisdom. It contradicts the notion that retail traders typically support lesser-known “underdog” stocks. Instead, Tesla’s success reflects a broader trend among retail traders to invest in companies focused on a better and more advanced future, such as electric vehicles.

Tesla’s Unique Position in the Market

Unlike other stocks associated with brick-and-mortar businesses, Tesla is focused on a digital, electrified future. Its market value surpasses that of GameStop and AMC, despite having a smaller fleet of vehicles on the road compared to traditional automakers like Ford, General Motors, and Stellantis. Tesla’s appeal also stems from its association with CEO Elon Musk, who has become a prominent figure in the electric vehicle industry.

Tesla’s Growing Popularity and Hedge Fund Interest

Hedge funds are closely monitoring Tesla’s increasing popularity among retail traders as a significant variable in their investment decisions. Although Tesla’s net inflows experienced a decline between 2020 and 2021, they surged last year, and the trend continues in 2023. Retail investors are showing strong support for Tesla, with new retail money approaching $36 billion, surpassing last year’s pace. This surge in popularity is attributed to Tesla’s recovery from a challenging 2022 and its price cuts to boost sales.

Analysts’ Outlook on Tesla

While Tesla’s stock has soared in 2023, analysts anticipate a potential pullback in the coming year. The average analyst projects a price target that implies a 12% decline in Tesla’s shares. Many analysts have hold-equivalent ratings on the stock, including Barclays’ Dan Levy, who refers to Tesla as the “original meme/momentum stock.” Despite recognizing Tesla’s role in mainstreaming electric vehicles, analysts caution that its inflated valuation compared to other auto stocks should not be overlooked.

The Future of Tesla

While Tesla is currently experiencing a “golden era,” analysts warn that such periods are typically short-lived. Tesla’s market value far exceeds that of its competitors, but this may not be sustainable in the long run. Nevertheless, Tesla’s rise in popularity among everyday investors signals a shift towards supporting companies driving innovation and a better future.