Why is GameStop stock surging again?
To quote Elon Musk, “Gamestonk!!”
Nicole Narea covers politics and society for Vox. She first joined Vox in 2019, and her work has also appeared in Politico, Washington Monthly, and the New Republic.
A roaring kitty, a legion of Redditors, and failing companies that are suddenly, inexplicably highly valued are making it feel like 2021 all over again.
GameStop was one of the first meme stocks — stocks that go viral among retail investors, usually for reasons outside the inherent value of their businesses — and now the craze seems to have reignited because Keith Gill, an influential investor on X under the handle Roaring Kitty, posted on Sunday a drawing of a guy holding a game controller leaning forward in his seat.
While cryptic to the casual internet-goer, it’s a meme familiar to gamers who know it means that things are about to go down. That was all the signal that his followers needed: it was time to buy, buy, buy their favorite meme stocks again.
At the beginning of May, GameStop’s stock price was around $11. But when markets opened Tuesday morning, it was nearly $65 — higher than that of major companies including Coca-Cola, Wells Fargo, and Citigroup. That’s quite a feat for a business that is arguably an anachronism from before the existence of digital game downloads and that has closed about a third of its stores since 2017.
And GameStop isn’t the only company temporarily benefiting from Roaring Kitty’s boost. The movie theater chain AMC and Y2K smartphone maker BlackBerry also saw their shares soar Tuesday morning.
The question is how long this latest craze might last and who will reap the profits — or lose out big.
How this bullish run compares to the 2021 meme stock fad
If this all seems familiar, it’s because Roaring Kitty, also known as “DeepF***ingValue” on Reddit, is a pivotal character in the rise of meme stocks. He’s been on a years-long hiatus from the investing game, and his post seemed to signal that he’s finally back after helping make GameStop a meme stock back in 2021.
Roaring Kitty and other Redditors on the forum r/wallstreetbets propelled the price of GameStop stock from under $5 a share in January 2021 to as high as $500 by the end of the month. Their goal was to orchestrate a short squeeze — forcing institutional investors who were betting against the stock to buy it back at a higher price to cover their losses. (They also just thought it was funny.)
Elon Musk even got in on the action.
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
The brokerage platform Robinhood eventually made the controversial decision to temporarily restrict trading of the stock, citing market volatility and regulatory requirements. Customers sued the platform, claiming that they had lost money as a result, but Robinhood won a dismissal of the lawsuit.
The whole saga inspired the 2023 film Dumb Money.
This time around, short-sellers are again getting squeezed, with hedge funds suffering a total loss of $838 million based on the market value of GameStop stock due to the rally.
There have been interruptions to trading, too. Trading of GameStop stock was halted nine times on Monday and at least eight times so far on Tuesday due to volatility under Securities and Exchange Commission rules.
It seems that the motivations are similar to last time as well. On r/wallstreetbets, declarations of “YOLO” abounded on Tuesday. Said one user who made a more than $5,000 return on AMC shares in 24 hours, “My only regret is that I didn’t buy more.” Another user claimed that, actually, BlackBerry is the “most legitimate meme stock out there,” making the case that its pivot to cybersecurity and away from selling phones meant that it was underrated.
But just as the last bout of meme stock mania came crashing down by 2023, this one will likely suffer the same fate. Cole Smead, the CEO of Smead Capital Management, which manages about $6 billion in assets, told CNBC that the rally is “just gambling” and that day traders are “just taking in rat poison.”
Considering the pressure of high interest rates, the market may struggle to support this kind of bubble for long.
Source: vox.com