• Retail investors have finally returned to the stock market, lured by the AI hype, Vanda Research said.

• The firm said retail investors helped drive a daily average flow of $1.36 billion into the stock market over the past week.

• "Retail's uptick in buying can extend over the coming weeks and, in turn, support equity markets' grind higher," Vanda said.

The hype in artificial intelligence stocks like Nvidia, combined with the resolution of the US debt ceiling last week helped finally push retail investors back into the stock market.

That's according to a Thursday note from Vanda Research, which highlighted that retail investors helped drive average daily inflows of $1.36 billion into the stock market over the past week.

"Retail traders are officially back in the mix after a three month lull," Vanda's Giacomo Pierantoni said. Better economic data is also helping the bullish outlook for stocks, with the May jobs report signaling that the US economy remains resilient despite elevated interest rates.

The return of the retail investor could also be seen in sentiment indicators, which have turned more bullish over the past week.

CNN's Fear and Greed Index has been hovering in "Greed" territory over the past week and jumped to the "Extreme Greed" territory on Thursday, while AAII's weekly investor sentiment survey showed the highest bullish reading in nearly two years, right before the stock market peaked.

Some popular trades by retail investors in recent weeks include buying blue-chip stocks like Apple, rotating out of regional bank stocks following their week-long rally, and buying small-cap stocks, according to Vanda.

AI stocks should also see continued buying pressure from retail investors in the coming weeks, according to the note, and there's still room to run as retail investors buying activity has not yet reached worrying levels.

"In yet another indication that stocks are not seeing worrying levels of retail front, one-month flows into AI names have only just crossed levels that would have typically been associated with 'low' retail buying in the past year," Pierantoni said.