This individual investor favorite has endured even as other meme stocks fell from favor

Published Sun, Sep 17 20237:35 AM EDTUpdated Mon, Sep 18 20232:33 PM EDT

Tesla is on track to become the stock that's bought most often by everyday investors this year, underscoring the electric vehicle maker's rise in popularity even as the meme-stock craze largely fizzled. Retail traders have made the leap from so-called meme stocks , including GameStop and AMC , over the past few years. The brief mania in GameStop that captured national attention in 2021 is the inspiration for "Dumb Money," Sony's movie chronicling the meme-stock saga that's debuting in theaters this weekend. All the while, Tesla inflows from retail traders have mostly climbed in the past half decade, according to data analyzed by Vanda Research. In 2018, Tesla wasn't even in the top 20 securities by total net inflows. Fast forward to 2023, and Tesla is poised to see the greatest amount of individual investor dollars of any security for the first time — surpassing even the SPDR S & P 500 ETF Trust (SPY) , which tracks the entire S & P 500 index. A retail investor darling Tesla's ascent on Main Street reflects — and challenges — long-held assumptions about how everyday investors think, according to Roth MKM analyst Craig Irwin. It also underscores the differences between the company and others caught up in the meme-stock craze that became a defining characteristic of trading during the pandemic. Irwin said Tesla aligns with a broader trend among retail traders to support companies that are focused on a better and more advanced future. Electric vehicles fit this narrative. "It's a growth stock, but it's really a hopes-and-dreams stock," said Irwin, who covers Tesla and other clean technology stocks. "Retail likes stocks where they can get behind positive ideas." But Tesla can also be a surprising pick among everyday investors, who tend to look for less well-known "underdogs." In this case, he said the electric vehicle market is so fragmented with so many variables, and so filled with untested smaller companies, that it makes sense that these investors would flock to a safe name. It also has the imprimatur of CEO Elon Musk. While Tesla is considered the leading electric vehicle maker, its fleet of vehicles on the road is dwarfed by the number of cars, pickup trucks and SUVs from incumbents Ford , General Motors or Stellantis . The stock is different in other ways from those that captured attention in the pandemic. GameStop and AMC, for example, are both associated with brick-and-mortar businesses that can be seen as relics, while Tesla is focused on a digital, electrified future. GameStop and AMC, with market values a tiny fraction of Tesla's, have largely failed to crack the list of top inflows in the last five years despite gaining attention in part from short squeezes that rocked Wall Street . " Short squeezes " happen when a rising stock forces investors who bet against the company to cover their position by buying back shares to limit their losses, creating a feedback loop that pushes the stock even higher. The only exception was 2021, the peak year for meme stocks, when AMC nabbed the seventh highest spot after drawing more than $4.1 billion. A 'golden era'? Tesla's growing popularity among retail traders is being watched by hedge funds as one variable when deciding how to play the stock, Irwin said. To be sure, Vanda's research shows it hasn't been a linear path to the top, with net inflows falling between 2020 and 2021 before surging last year. Tesla's climb also comes amid a broader buy in from retail investors in their favorites. The SPY ETF saw slightly more than $4.6 billion in net inflows in 2018 when it claimed the top spot. Tesla is nearing $36 billion in new retail money with more than three months left in 2023, already more than double last year's, while the SPY has followed with almost $25 billion. This year's large inflows make sense to Irwin, given that Tesla is coming off a tough 2022 when shares plunged 65%. Tesla has cut some prices this year to lift sales amid slower growth in the U.S., China and Europe, he noted. Tesla has soared more than 120% so far in 2023, although that still leaves the stock 28% below where it closed at the end of 2021. (The S & P 500 is down almost 7% in the same span.) But the average analyst sees a pullback ahead, with a price target implying shares could slip almost 12% in the next year, according to LSEG, formerly known as Refinitiv. The majority of analysts have hold-equivalent ratings on the stock, per LSEG. One of those is Barclays' Dan Levy, who called Tesla "the original meme/momentum stock" when downgrading the stock to equal weight from overweight in June. He said investors try to chase highs during "euphoric periods" such as in 2020 and 2021. Irwin, who described himself as a Tesla bear, also has a hold rating. While he credits Elon Musk and Tesla for making electric vehicles mainstream, he said the company's inflated valuation compared with other auto stocks like Toyota is something investors shouldn't overlook. Tesla's market value Friday was $876 billion, while Toyota's was $253 billion. Stellantis , owner of Chrylser and Jeep, was worth $59 billion. "This is probably a golden era for Tesla," Irwin said. "But these golden eras don't last forever. They're very often short lived."