Move Over, Tesla! There's a New No. 1 Stock for Robinhood's Retail Investors.

The advent and proliferation of the internet in the mid-1990s is known for positively changing the growth arc for American businesses and opening doors to customers that previously didn't exist. But the arrival of the internet also ushered in the era of the retail investor.

Prior to the mid-1990s, everyday investors had to watch financial news networks on television or wait for the morning paper to determine how their stocks performed during the previous session. With the internet, this information, along with income statements, balance sheets, investor presentations, and management commentary were a literal click of a button away.

As time has passed, retail investors have accounted for a larger percentage of overall trading volume on Wall Street. As of 2021, a quarter of total equities trading volume came from retail investors, which was almost double the figure from the decade prior, based on a study from the University of Missouri-Kansas City School of Law.

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Online brokers, such as Robinhood Markets, have taken note of the growing importance of everyday investors and are actively courting them. Robinhood offers its investors commission-free common stock trades on major U.S. exchanges, as well as the ability to buy fractional shares of companies.

Perhaps the most unique aspect of Robinhood's platform is its "100 Most Popular" feature, which allows its customers to see which stocks and exchange-traded funds (ETFs) are the most widely held. For quite some time, electric-vehicle (EV) manufacturer Tesla (NASDAQ: TSLA) sat atop the pedestal as the most held stock on Robinhood. However, what's arguably Wall Street's most-influential company has unseated it to become the new No. 1 stock of retail investors.

Tesla is no longer the most held stock by Robinhood's retail investors

Tesla's popularity among everyday investors boils down to its innovation and its CEO Elon Musk.

Tesla became the first automaker in more than a half-century to build itself from the ground up to mass-production. Under Musk's leadership, multiple EV models have been introduced, and the company has expanded into other avenues, such as energy generation and storage, as well as the early development of humanoid robots (known as Optimus).

Robinhood's retail investors have demonstrated an appreciation for CEOs who think outside the box, and tend to pile into stocks that have blown the returns of the benchmark S&P 500 out of the water. Tesla certainly fits the bill on both accounts.

But with Tesla stock closing out the previous week at north of $433 per share and sporting a $1.44 trillion market cap, it comes with plenty of risk -- and retail investors likely know it.

Though it remains North America's leading EV manufacturer and the only pure-play EV company in North America that's generating a recurring profit, Tesla's gross vehicle margin has come under heavy pressure as competition picks up. Musk noted during Tesla's 2023 annual shareholder meeting that his company's pricing policy has everything to do with demand for its EVs. Since the start of 2023, Musk has spearheaded more than a half-dozen sweeping price cuts for its EV fleet.

Another red flag for Tesla is its CEO, Elon Musk. Despite being viewed as a visionary by Tesla optimists, Musk has a tendency to overestimate the addressable opportunity and adoption rate of new innovations. He's proclaimed that Level 5 full self-driving is "one year away" for the last 11 years, and opined that 1 million Tesla robotaxis would be on public roads by 2020 in 2019.

The simple point being that many of Musk's lofty projections are baked into his company's share price, yet many of these visions fail to materialize.

The final reason for Tesla's unceremonious drop to No. 2 on Robinhood's "100 Most Popular" leaderboard is its valuation. Whereas most auto stocks trade at a high-single-digit or low-double-digit multiple to earnings, Tesla stock is commanding a price-to-earnings (P/E) ratio of 263, based on forecast earnings per share this year.

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Retail Investors' No. 1 stock is spearheading a $15.7 trillion addressable opportunity

The phenomenal business that kicked longtime No. 1 holding Tesla aside on Robinhood is none other than Wall Street's largest publicly traded company, artificial intelligence (AI) goliath Nvidia (NASDAQ: NVDA).

It's been easy for retail investors to become enamored with the growth potential of AI stocks. According to estimates from the analysts at PwC in Sizing the Prize, improvements in productivity, coupled with consumption-side effects, are expected to increase global gross domestic product by $15.7 trillion come 2030.

Although $15.7 trillion is a figure that can lead to a long list of winners, no company has been a bigger beneficiary of the AI revolution than Nvidia. It's tacked on roughly $4.2 trillion in market cap since 2023 began, with its shares rocketing higher by more than 1,100%!

One of the factors that makes Nvidia special is its AI-graphics processing units (GPUs), which are the preferred option by businesses operating high-compute data centers. While estimates vary, Nvidia is believed to account for 90% or more of the GPUs deployed in AI-accelerated data centers.

What's more, this share isn't something CEO Jensen Huang expects his company will cede anytime soon (if ever). Huang is overseeing an accelerated innovation cycle that's attempting to bring a new advanced GPU to market on a yearly basis. Following the rollout and ramp of Blackwell Ultra chips in 2025 will be the Vera Rubin and Vera Rubin Ultra chips in the second-halves of 2026 and 2027, respectively.

Additionally, Nvidia's CUDA software platform has done an outstanding job of keeping clients loyal to the company's ecosystem of products and services. CUDA is the toolkit developers rely on to get the most out of their Nvidia hardware. This includes maximizing compute capabilities, as well as building and training large language models.

Though Nvidia has been virtually unstoppable, as an investment, for nearly three years, the No. 1 holding of retail investors isn't without its own unique headwinds.

For example, we haven't witnessed a single game-changing technological innovation avoid an eventual early innings bubble-bursting event in more than three decades. Including the internet, every hyped technology has failed to live up to the unreasonable adoption rate and early stage utility expectations of investors, such as 3D printing, blockchain technology, and the metaverse. All signs point to artificial intelligence being the next in a long line of bubbles that'll burst.

Nvidia also isn't exempt from competitive pressures. While its current market share can be described as monopoly like, it doesn't take into account that many of its largest customers by net sales (i.e., other members of the "Magnificent Seven") are internally developing AI-GPUs to use in their data centers. These internally developed chips are considerably cheaper and not back-ordered. This is a recipe for Nvidia to lose out on valuable data center real estate, or to see future upgrade orders delayed.

Suffice it to say, the No. 1 stock of Robinhood's retail investors is contending with some serious historical headwinds.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.