US video game shop GameStop’s share price more than doubled as the result of a a ‘meme rally’. But what is it and how can it move millions of dollars?
For the second day in a row, the shares of US video game retailer GameStop Corp and movie theatre chain AMC Entertainment Holdings Inc have seen their prices soaring by more than 70% – and the reason is a single social media post.
This is what market experts call a “meme rally”, involving retail market traders flocking into “meme stocks”, buying up the shares of companies with cult-like social media followers. They hit the ‘buy’ button based on sympathy or trends on social media, rather than profit, income or any other indicator of how the investment is about to perform.
Following a relatively slow period in the US market over the past few weeks, meme stocks, such as GameStop, AMC Entertainment (AMC), and BlackBerry (BB), received the roar of approval on Monday after prominent influencer “Roaring Kitty” reappeared on X with a single post. GameStop and AMC Entertainment (AMC) gained more than 70%.
Roaring Kitty aka Keith Gill, is a GameStop investor who became known in 2021 for his role in fuelling the meme stock frenzy.
During the Covid-19 pandemic, he used his social media influence to turn around a trend of institutional investors betting on GameStop’s demise. The high-street video game shop’s market was overtaken by big online shops including Sony’s and the share price was on the brink of collapsing when an army of retail investors picked up the “fight” against the hedge funds to save the place that had been part of their childhood.
The share price went from $17 (€15.7) to $500 (€463) in a month.
The current frenzy is nothing compared to the one in 2021, according to experts.
Financial network tastylive Founder and CEO Tom Sosnoff told Yahoo Finance that the spikes in the trade were due to high-frequency investor firms trying to get a slice of the pie.
“So, a lot of the volume is high-frequency firms and market-making firms that know that there’s going to be customers coming in on the buy side, so they’re just trying to get in front of it so they have some inventory to lay out,” said Sosnoff.
GameStop has lost much of that value since 2021; its share price before the US markets opened on Tuesday was $30.45 (€28.2).
The company could be hoping for a greater gain as meme-stock traders continue to buy its stock.
Separately, movie theatre chain AMC announced the sale of 72.5 million shares and raised $250 million (€232 million) in total and its share was up by almost 120% in premarket trading on Tuesday.
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