The meme stocks are back.
Shares of companies that set the stock market and social media abuzz earlier this year are rallying again this week, rewarding individual investors who have held on for months.
GameStop Corp.
,
AMC Entertainment Holdings Inc.,
and
Express Inc.
are all up more than 36% week-to-date, pushing each stock to levels not seen for weeks—or in some cases, months.
The sudden surge is reminiscent of late-January, when individual investors banded together to drive shares of companies once left for dead by Wall Street to unprecedented heights. This week’s rally—though tamer by comparison—has similarly lit up Reddit forums, Discord chat rooms and
feeds.
Similar to previous rallies among meme stocks throughout this year, no singular or clear catalyst has seemed to drive this week’s rally. Analysts said the jump has likely been driven by a crosscurrent of factors that have prompted individual traders to pile in. With cryptocurrencies having lost much of their steam this month, many nonprofessional traders have re-entered the stock market on the hunt for gains. Platforms such as Reddit’s WallStreetBets forum have provided a source of continued enthusiasm for meme stocks in particular.
“We’ve seen things sidelined for the past month or so, but it’s starting to pick back up again,” said
Viraj Patel,
global macro strategist at Vanda Research.
Data from VandaTrack shows that individual investors poured more than a net $22 million into AMC Tuesday, more than double the stock’s average 2021 daily net inflow of about $9 million. The company’s share price traded above $19 Wednesday afternoon, putting it on pace to potentially close above the heights reached during January’s meme stock frenzy.
Driving some of the enthusiasm is a conviction among individual investors that meme stocks like AMC and GameStop can soar “to the moon” again. Many have spent months monitoring bearish positions in the stocks, hoping to create a repeat of the stocks’ frenzied rise earlier this year. At its peak earlier this year, GameStop’s share price soared to $483 intraday, up from less than $20 at the start of the year. It traded Wednesday afternoon at $240, up 15% on the day.
January’s rally was caused, in part, by a short squeeze. Investors bet against a company by borrowing shares and selling them, wagering they can buy them back later at a lower price. A short squeeze occurs when the price rises instead, forcing those with short positions to buy stock to limit their losses, driving further share-price gains.
Before January’s meme stock rally, hedge funds and other institutional investors had wagered share prices for companies including GameStop would continue to fall. They instead were punished with severe losses when the meme stocks started to rise.
Individual investors on social media are hoping to catch institutional investors on the wrong side of the trade again. Short interest in AMC currently stands at nearly 21% of the stock’s free float, according to data from S3 Partners, up from a 2021 low of nearly 11% in March, but down from the 28% reached earlier this year. GameStop’s short interest stands at about 20%, compared with more than 140% in January.
The recent share climb suggests another short squeeze could be possible, especially if short sellers lose conviction or if their losses mount, said
Ihor Dusaniwsky,
head of predictive analytics at S3 Partners. Already this week, investors who bet that shares of GameStop and AMC would fall have seen larger than normal losses, he said. Those with short positions in GameStop lost at least $692 million on Tuesday and Wednesday, S3 Partners data show. Short sellers who bet against AMC, meanwhile, have lost at least $482 million during the same period.
“Both stocks have very high short squeeze potential right now,” Mr. Dusaniwsky said.
Still, some analysts doubt social media momentum can boost stocks as strongly as earlier this year. Inflows into meme stocks such as AMC also remain a fraction of those seen prior.
“The crowd is going to be disappointed by the potential returns. Mania requires lots of momentum,” said Peter Atwater, an adjunct professor of economics at The College of William & Mary. “They may give it a shot but I’d be surprised if they can generate that kind of organic crowd behavior that they had before.”
Another force behind GameStop’s rise could also be speculation about the videogame retailer’s foray into another area of booming online speculation—the market for the digital collectibles known as nonfungible tokens, or NFTs. A subdomain for “GameStop NFT” recently appeared on the company’s website, fueling speculation that GameStop may offer its own suite of digital assets that users can buy and sell. GameStop didn’t immediately return requests for comment.
So-called NFTs have exploded in popularity this year, largely as a means of owning digital collectibles such as works of art, music and sports highlights. These tokens accompany digital assets and live on the blockchain, a digital ledger that records who owns them, who created them and other key information.
NFTs have become popular in videogaming as a means of letting players own buildings, avatars or game accessories, rather than essentially leasing them from a platform. Players hope that items they purchase can be used on many gaming platforms, rather than just one.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
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