Today's capital market segment is brought to you by Alpaca. Investors are digesting a heavy lineup of economic data this morning, headlined by PCE inflation as well as ADP employment figures ahead of Friday's jobs report and the final Q2 GDP. But beyond institutional flows at eToro, the latest quarterly retail investor survey shows a maturing retail market.
While nearly 80% of Gen Z and millennial investors now embrace artificial intelligence as a portfolio management tool, expectations for AI stock outperformance have dropped from 57% down to 47%. Meanwhile, retail capital is rotating away from financials toward healthcare as well as energy. And joining us to break all of this down is Brett Kenwell, U.S. investment and options analyst at eToro.
Brett, great to have you here. Thank you so much for joining me.
Yeah. Of course. Excited to be here.
Well, it is a busy morning here on Wall Street as we wrap up the third quarter and head into the final quarter of this year. But I do want to get your perspective, especially on the heels of the latest release out from eToro. So I understand that most young investors do use AI tools, but when it comes to trading, how are these investors actually separating the tool from the trade?
Yeah, that's a great question. And when we look at retail investors and how they're sort of viewing AI stocks and separating from how they use it, just because they're using it more and embracing it more does not necessarily mean that they are relentlessly bullish on the stocks. So we're certainly starting to see that bifurcation happen now, where a majority of investors are embracing it or allowing AI to influence their investment decisions.
In some cases, that's just saving time on research. I think a lot of us can really sort of sympathize with that, using it as more of a tool. But almost a similar amount of retail investors also view it as the future of investing, which, given the capability of AI and the long term expectations for it, it's not surprising that that's up there.
So it's really sort of everything from minor to majorly incorporating AI into their investment decisions.
Yeah. And when we're here on Wall Street, of course, we're paying attention to artificial intelligence, the role of the technology in the future of work, as well as in publicly traded companies. But tell us about why we're seeing this cool down when it comes to AI bullishness from the millennial investors.
Yeah. So millennials a year ago, 70% of millennial investors expected AI stocks to rise. That number fell down to just 50%. And we saw not quite as similar slowdown, but a slowdown among retail investors in general. So it's not just millennials or Gen Z. It's not just the younger investors.
It's really the whole cohort. It's all retail investors. And, you know, I think of it sort of like an apparel company, for instance, that you might lace up the same type of shoes or put on the same type of clothes every day, but that doesn't necessarily make it a good investment, right? So I think, you know, we sort of see those expectations cooling on AI stocks.
We had a very strong quarter in Q2. They had a very strong first half of the year. And the survey was done in the second half of August where there was a little kind of a tough summer to get through with AI stocks. So I think some of those expectations just cooled after a very strong run.
And I do want to ask you about the difference that we were seeing between the millennials versus the boomers. This almost sounds like the beginning of an Instagram short or perhaps TikTok video. But when it comes to the CapEx spending that all of us are watching when it comes to the AI companies, the hyperscalers, tell us about the divergence between millennials versus the boomers.
Sure. So in general, retail investors look at Mag Seven with a bit more stability, right? There's not just this expectation that they'll rise. Almost half of retail investors expect this group to outperform the broader market, which is no small feat given how well the market's done this year despite a lot of headwinds.
But when you're looking at how much they're spending, because that's been sort of a deterrent for Mag Seven, right? How much money they're putting into these AI infrastructure projects and they're building out their AI pipelines. Millennials are bullish about that. They're optimistic. They feel good about the amount of money that these companies are spending.
Admittedly, it's sort of a proven type of stance around Mag Seven. And we've seen it kind of play out in these last few earnings cycles. But the older generation is not quite so forgiving and doesn't have as much leeway with the spending. They much more want to see a profit model come from Mag Seven before they invest more.
And of course, all of us are watching sector performance when it comes to financials, especially as we're counting down to the beginning of earnings season next month. But tell us what's happening when it comes to financials, and why are we seeing this rotation away from financials for the first time in 12 quarters?
Yeah. You know, I think it might have less to do with any sort of direct bearishness on financials and more of a bullishness on what we're already seeing. So tech, we already know tech is a beloved sector by both retail and institutions. So it's no surprise that they're ranking highly. But energy is also one of the tech and energy of the two best performing sectors this year.
So to see them up in the top two spots is not surprising. And healthcare has so many secular drivers right now that it just seems like a rotation finally took place where financials just didn't have what it took to stay in that top three, where they have been for our quarterly survey for three years now.
And finally, Brett, before I let you go, we can't leave out Gen X and Gen Z. So what are they favoring when it comes to sectors?
Yeah, we are seeing a really similar cluster but a heavier concentration in those top three. So tech, retail and healthcare, they remain the favorite but in a more meaningful way. So those groups are sticking with retail's broader strokes.
Well, Brett, it's always great having you on the show. Thank you so much for joining us. And as always, thank you so much for your insight into the retail investor. Thank you. Thank you.
