In the past month, the US stock market's AI sector has become the battleground for a fierce showdown between institutional and retail investors.

Institutions are pulling out rapidly, while retail investors are fully committed, buying frantically.

According to data from BofA Securities, from June 5 to June 26, institutional funds at BofA experienced net sales of $14.2 billion, $2.8 billion, $11.2 billion, and $9.9 billion, respectively, over just four weeks. The $14.2 billion and $11.2 billion figures mark the largest and second-largest weekly sell-offs in history.

Yet, the most striking aspect is that amid this massive institutional exodus, retail investors have emerged as the most resolute bulls.

This year, retail investors have maintained their enthusiasm for AI assets. Data from Citadel indicates that since 2026, whenever the S&P 500 has declined, retail investors' net cash stock purchases have surged to 3.5 times the normal daily average.

In simpler terms, the more the market drops, the more retail investors buy. This buying intensity even surpasses the frenzy seen during the 2021 GameStop short squeeze.

Calculations by Bloomberg Intelligence reveal that as of early July 2026, institutional holdings in the AI semiconductor sector's float have decreased from 78% in Q1 to 62%, while retail holdings have jumped from 12% to 27%.

The last time institutions retreated and retail investors surged in was in 2022. Back then, the 20 tech stocks most heavily bought by retail investors subsequently plummeted by an average of approximately 44%. Will history repeat itself this time?

Recently, institutional investors in US stocks have begun to exit the AI sector en masse.

Data from BofA Securities shows that from June 5 to June 26, institutional funds experienced net outflows of $14.2 billion, $2.8 billion, $11.2 billion, and $9.9 billion, respectively, in just four weeks.

The $14.2 billion and $11.2 billion figures represent the largest and second-largest weekly sell-offs in history.

This is not just a retreat; it's a full-blown exodus.

Hedge funds are leaving even more decisively.

In the week ending June 25, their net selling of US tech stocks reached a multi-decade high. The semiconductor sector saw frantic selling for eight consecutive trading days, while the once-dominant 'Magnificent 7' tech giants faced reductions for five straight weeks, with overall exposure nearing a three-year low.

Among the 1,059 hedge funds tracked by Goldman Sachs, semiconductor holdings plummeted by 1.2 percentage points in a single week at the end of June. It's worth noting that semiconductor holdings had only climbed 4.28 percentage points over three months to reach a historical high of 10% in early Q2.

It's not unusual for institutions to sell stocks—June is traditionally a rebalancing month for them.

Particularly for pension funds and mutual funds with fixed equity-debt allocations, the significant gains in tech stocks in the first half of the year automatically pushed equity exposure beyond compliance limits. They must passively sell high-flying stocks and buy bonds to rebalance their portfolios.

However, the scale of this exodus is staggering. In 2024, BofA's institutional clients saw net sales for three consecutive weeks, averaging $3.4 billion. In 2025, during the same period, they sold for four consecutive weeks, averaging $2-4 billion per week.

This time, the average weekly net sales are nearly $10 billion!

Regarding this phenomenon, Goldman Sachs trader Benny Quek bluntly stated in a report that the era of blindly buying AI assets and making easy money is over.

Amid this institutional exodus, retail investors have become the most steadfast bulls—and potentially the most tragic bag-holders.

As the largest US retail market maker, Citadel Securities accounts for 35% of US retail trading volume. To some extent, Citadel's trading data serves as a barometer of retail behavior.

According to Citadel Securities data, since 2026, whenever the S&P 500 has declined, retail investors' net cash stock purchases have surged to 3.5 times the normal daily average.

In simpler terms, the more the market falls, the more retail investors buy.

This is the strongest wave of retail buying since Citadel began tracking this data in 2020, even surpassing the 2021 GameStop short squeeze frenzy when 'retail challenged Wall Street.'

Especially in the past two months, retail investors have been buying frantically. Citadel's platform has repeatedly broken monthly trading activity records, with seven of the nine most active trading days in history occurring in June this year.

More importantly, retail investors' investment direction is shifting.

Previously focused on the 'Magnificent 7,' they are now expanding into more specialized and harder-to-track semiconductor industries.

Data from US brokerage Webull shows that retail participation in individual Magnificent 7 stocks has dropped to 6%, a four-year low. Meanwhile, retail holdings in semiconductor packaging have risen 47% month-over-month, memory 39%, and data center REITs 32%.

Webull's CEO revealed that 9% of users now hold at least one semiconductor-related stock, up from just 3% two years ago.

Not only are they buying more, but retail investors also love using leverage.

According to Citadel data, retail investors' daily average option premium trading volume was about $6.8 billion in June, up 17% from May, 65% higher than the 2025 average, and more than double the historical average.

Chip stocks are retail investors' favorite leverage play. In May, the daily average option premium trading volume for semiconductors hit $1.6 billion, doubling from April and nearly five times the historical average. In June, this figure soared to $1.9 billion.

Moreover, retail investors are overwhelmingly betting on upside—nearly all their positions are bullish.

Data shows that among newly opened option positions related to the Magnificent 10, 52% are call purchases, while only 17% are call sales. This extreme bias approaches levels seen during the 2021 GameStop frenzy.

Besides stocks and options, single-stock leveraged ETFs have become US retail investors' favorite trading tool.

Data from Morningstar Direct shows that there are now 355 single-stock leveraged ETFs in the US market, with over 275 launched after January 2025—accounting for nearly 80%.

In other words, most were issued in the past year. Currently, single-stock leveraged ETFs manage over $31 billion in assets.

Last year, their trading volume accounted for 8% of total US exchange trading volume. Nearly 90% of this volume came from retail investors.

From stocks to options to leveraged ETFs, retail investors are using increasingly high-risk tools to express their faith in the AI rally.

History rhymes. The last time institutions retreated and retail investors charged in was in 2022.

Back then, the Fed launched its most aggressive rate-hiking cycle in four decades. Institutions fled at the first sign.

In 2022, hedge funds' net selling of US tech stocks hit a post-2008 financial crisis high.

Bridgewater, Tiger Global, and other top firms led the exodus. Bridgewater fully liquidated its positions in Nvidia, AMD, and Micron in Q4 2022, while slashing Microsoft and Apple holdings by 94%. Tiger Global's tech holdings shrank 55% quarter-over-quarter in Q2, with widespread reductions and liquidations.

Meanwhile, retail investors net-bought over $7 billion in US stocks, with over 45% flowing into tech and semiconductors—buying more as prices fell.

The result?

JPMorgan data shows that in 2022, the 20 tech stocks most heavily bought by retail investors fell by an average of ~44%. The more they bottom-fished, the more they lost.

Now, the script seems to be repeating.

Calculations by Bloomberg Intelligence reveal that as of early July 2026, institutional holdings in the AI semiconductor sector's float have dropped from 78% in Q1 to 62%, while retail holdings have surged from 12% to 27%.

The last time institutional holdings fell below 65% was September 2022.

That year, the Nasdaq plummeted 33.1%, while the Philadelphia Semiconductor Index crashed 35.8%. Most brutally, from early September to year-end, the Nasdaq fell another 11.42%.

History may not repeat exactly, but retail investors' 'faith' when stepping in to catch falling knives remains eerily similar.