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GameStop & AMC Stocks Jump on Renewed Meme Stocks' Hype

Carolane de Palmas | Tuesday 04 June 2024

Yesterday, Monday, June 3rd, the share price of two popular meme stocks, GameStop (GME) and AMC Networks (AMCX), sharply increased after social media activity by "Roaring Kitty" revealed a significant GameStop stake. 

After GameStop and AMC surged as high as 80% and 25% pre-market yesterday, they settled at gains of 21% and 5.65%, respectively. Is this a meme stocks comeback? Let's take a closer look: 

An illustration of trading charts

What Are Meme Stocks? A Brief Reminder

Think of a catchy image or joke that spreads uncontrollably online - that's a meme. Now, imagine this online frenzy focusing on a particular company's stock. That's when you get a meme stock. 

Fueled by social media buzz on platforms like Reddit (RDDT), X (formerly Twitter), and Meta Platforms (META), among others, meme stocks can experience explosive online buzz and quick surging trading activity. 

But here's the catch: this excitement often overshadows a company's actual financial health. The price swings can be wild, with meme stocks potentially prone to crashes, especially if heavily shorted by traders betting on their decline.

The meme stock phenomenon emerged in 2020, with GameStop taking centre stage on the Reddit forum r/wallstreetbets. (Source: Investopedia)

How Can Social Media Shift the Markets?

You might be wondering how a single post on social media might have been responsible for such a large share price movement on Monday. It's probably because Gill was a major player in the original meme stock craze of 2020 and 2021, where online hype drove up GameStop prices. 

In 2019, a former financial analyst, named Keith Gill saw potential in GameStop, a struggling video game retailer. He believed the stock was undervalued and started buying shares for $53,000.

Gill wasn't alone. He shared his thoughts about GameStop shares online, sparking interest from other investors. This online buzz caused the stock price to climb. Meanwhile, some institutional investors, like hedge funds, were betting against GameStop. They used a strategy called "short-selling" which is essentially a bet that the stock price was going to fall.

However, as more and more regular investors (like Gill and those on social media) piled into GameStop, the price skyrocketed. This unexpected price rise forced the hedge funds who bet against GameStop to buy shares to cover their losses. This event is known as a "short squeeze" (the opposite of a long squeeze) and pushed GameStop share price even higher.

At the peak of this meme stock popularity, Gill's initial investment ballooned to a whopping $48 million.

However, market trends are subject to change and past performance does not reflect future results.

What Are the Potential Reasons Behind the Recent Surge in GameStop and AMC Share Prices?

On Monday, June 3rd, GameStop’s stock price jumped for the second time in a month, though not as much as last month or the surge in early 2021. This increase in GameStop trading activity might also explain why other meme stocks, like AMC Networks, also saw increases yesterday.

Monday’s excitement around this meme stock is probably due to Gill, known as "Roaring Kitty" and "DeepF---ingValue". He seems to have sparked a new frenzy by posting on Reddit and X that he owns a significant amount of GameStop shares.

According to a screenshot he shared, Gill has 5 million shares, which were worth over $115 million when the screenshot was taken and even more on Monday morning (over $200 million). This is a huge jump from his previous post that he shared before a three-year break, where he mentioned owning 200,000 shares (worth over $30 million).

What Else Do You Need to Know?

The recent surge in meme stocks like GameStop and AMC Networks presents a double-edged sword. While both companies could enjoy a short-term boost, their extreme market volatility makes price reversals just as likely. Still, some traders could capitalise on this short-term volatility with share trading strategies like day trading.

AMC Networks, struggling with a heavy debt load, might have a golden opportunity to use this windfall to pay down liabilities, similar to how the 2021 meme stock frenzy provided a lifeline, potentially helping the company avoid going bankrupt.

Nonetheless, GameStop's situation is less rosy. Their weak fundamentals, characterised by lagging sales and profitability, raise serious concerns. While they've announced a digital transformation plan, its effectiveness remains shrouded in uncertainty. This lack of a clear path forward casts a long shadow over GameStop's long-term prospects.

Conclusion

Meme stocks can be risky because their prices can swing wildly and their highs might not last long. GameStop and AMC saw price bumps yesterday, but not as big as the jumps we saw earlier this year or back in 2021. Remember, past stock gains aren't a promise of future success.


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