Nvidia plummeted overnight; institutions sold off, retail investors bought frantically?

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Overnight, Nvidia’s stock price plunged and turned negative, triggering intense volatility in the technology sector. However, retail investors were not the main force behind this wave of selling—on the contrary, retail investors are buying at the largest scale ever, bucking the trend, while the real sellers are institutional investors.

During Thursday's U.S. trading session, Nvidia’s share price experienced dramatic reversals, swinging from a 5% intraday rise to a 5% drop. This sharp swing directly dragged down the overall performance of large-cap tech stocks.

Nevertheless, the strong buying from retail investors is providing a potential buffer for the market. In the first 80 minutes after the market opened, retail investors’ net purchases in single stocks—including Nvidia—reached $360 million, surpassing the total amount bought in the entire previous trading day ($336 million), indicating a strong risk appetite.

In stark contrast to the retail investors’ contrarian buying, Wall Street institutions dominated the sell side in this bout of volatility. Because the market was extremely crowded with long positions in Nvidia earlier, concentrated institutional selling intensified the downward pressure on the stock price.

Retail buying on dips hits a record high

According to Vanda Research, during Nvidia’s price decline, the market saw the largest retail buying since 2012. Retail buying activity in the first 80 minutes of trading broke records, and with funds flowing both directions, this partly explains the sharp price swings.

Vanda Research noted that despite weak early price action, retail investors overall did not participate in the selling. Instead, as the stock price fell, retail investors maintained sustained net buying throughout the session.

It is worth noting that retail buying enthusiasm was not limited to Nvidia. Vanda Research observed that on Thursday, retail investor activity spilled over to other targets: assets like AVGO, IGV, and SOXX all saw additional buying. If this momentum continues, the day could mark the largest single-stock retail buying in months.

Institutional funds dominate the selling

Behind the retail buying frenzy, the real selling force was institutional investors. According to Goldman Sachs’ trading desk, overall activity was moderate (5/10) on the day, but overall fund flows tilted about 5% towards sellers.

Breaking down by institutional type, traditional long-only funds (LOs) tended to sell, with main supply focused in macro products, IT, consumer discretionary, and healthcare, while buying was seen in materials and communications services. Meanwhile, hedge funds (HFs) showed a more pronounced selling tendency, with most selling in macro products, followed by industrials and financials; buying mostly appeared in IT (mainly short covering in software), consumer discretionary, and healthcare.

Furthermore, the extreme positioning in the market amplified the impact of this drop. According to Goldman Sachs’ flow experts, before this selloff, positioning in Nvidia was at an extreme level (rated 8/10). Such crowded positioning means that when the trend reverses, participants face broad losses.

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