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GameStop and AMC Entertainment have once more become the focus of retail investors, evoking memories of the ‘meme stock frenzy’ that took hold of Wall Street three years ago. Meme stocks refer to certain company shares that have been boosted by retail investors using trading platforms and social media investment advice read more
 "What are they and why are they soaring again?")
Traders work under signage for GameStop Corp. (NYSE: GME) on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, 8 August, 2022. File Image/Reuters
Meme stocks are once again causing a stir on Wall Street, since a group of smaller and less experienced investors drove up stock prices of struggling companies to extraordinary levels three years ago.
While there are some differences this time around, such as the familiarity of the experience following the events of 2021, experts believe that Wall Street should be better equipped to handle the sharp movements, aided by certain market changes.
The GameStop frenzy of 2021 tested the capacity and resilience of securities markets in a way that few had expected, as noted in a report by the US Securities and Exchange Commission.
However, certain risks remain unchanged. The potential for substantial losses still exists alongside the opportunity to quickly profit from trading such volatile stocks, reported AP.
GameStop, considered the pioneer of meme stocks, has experienced a sudden and dramatic surge. Its stock price rose by 60.1 per cent on Tuesday, following a 74 per cent increase the previous day. Similarly, other meme stocks from the pandemic era are also seeing significant fluctuations, with AMC Entertainment, a movie theater operator, jumping 32 per cent on Tuesday.
What could have triggered this surge?
The recent surge in GameStop’s stock price may have been sparked by a post from Keith Gill, popularly known among traders as “Roaring Kitty”. He played a central role in the initial GameStop surge, known for his distinctive red bandana and straightforward manner.
Roaring Kitty rallied other buyers through platforms like YouTube, Reddit’s WallStreetBets forum, and even in testimony before US Congress, where he expressed his strong support for the stock. During the first few weeks of January 2021, GameStop’s stock price skyrocketed by more than 1,700 per cent.
Roaring Kitty’s latest move came after a period of inactivity since June 18, 2021, when the X account for ‘TheRoaringKitty’ posted a meme on a Sunday evening. The meme depicted a person playing a video game, transitioning from a relaxed position to an upright and alert posture.
— Roaring Kitty (@TheRoaringKitty) May 13, 2024Many social media users interpreted this as a signal to buy GameStop, leading to a flurry of activity on forums where people shared screenshots of their profits from trading GameStop.
What are Meme stocks?
Meme stocks are stocks that gain popularity among retail investors, often driven by social media trends, rather than traditional financial metrics. These stocks can experience rapid and volatile price movements, fueled by online communities like Reddit’s WallStreetBets. The phenomenon gained significant attention in early 2021 when individual investors targeted heavily shorted stocks in an attempt to trigger a short squeeze.
One of the most notable examples is GameStop, whose stock price surged from around $3 to over $120 in a matter of months in 2021. This surge was attributed to posts by an investor known as DeepF******Value on the WallStreetBets subreddit, which sparked a rally in GameStop and other struggling companies like AMC, BlackBerry, and Bed Bath & Beyond.
The frenzy around meme stocks resulted in substantial losses for hedge funds that were shorting these stocks, most notably Melvin Capital, which required financial support from other hedge funds to cover its losses. The meme stock phenomenon attracted widespread attention, leading to US congressional hearings and even inspiring a movie titled “Dumb Money,” released in 2023 , that dramatised the events.
The appeal of meme stocks is simple: the chance to earn a fast profit in a relatively short time frame, while also taking a stand against professional traders on Wall Street who have shunned these stocks.
Which are other meme stocks?
While GameStop was the initial standout among meme stocks, it was not alone in capturing the attention of WallStreetBets users. They quickly identified other struggling stocks with significant short interest to rally behind. This included AMC Entertainment Holdings Inc. (AMC), a movie theater chain hit hard by the COVID-19 pandemic, and Blackberry Limited (BB), a once-prominent smartphone maker.
Both AMC and Blackberry saw their stock prices soar rapidly, mirroring GameStop’s meteoric rise. As these stocks gained meme status, members of r/wallstreetbets and similar forums found humour in the resurgence of these legacy companies in the stock market, often referred to as “lulz.”
While some meme stocks experienced substantial gains, others did not perform as well, despite occasional short squeezes. Additional meme stocks included Bed Bath & Beyond Inc. (BBBY), Koss Corp. (KOSS), Vinco Ventures (BBIG), Support.com, and even Robinhood Markets Inc. (HOOD), the trading platform that facilitated much of the meme stock trading frenzy.
With inputs from agencies
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English (US) ·