Why is GameStop stock surging again?
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Why is GameStop stock surging again?
They were the tweets heard around Wall Street: Meme stocks like GameStop, AMC and BlackBerry surged again this week after Keith Gill, an investor known as Roaring Kitty who helped drive their 2021 gains, reappeared on Twitter following a three-year hiatus.
GameStop shares closed up 60% on Monday, and were up 120% in pre-trading Tuesday morning. They’re now up more than 126% since last year. Meanwhile, AMC stock closed up 32% on Tuesday and up 78% on Monday. BlackBerry stock closed up 12% on Tuesday.
By midday Tuesday, GameStop shortsellers had lost almost $2.2 billion, according to data from S3 Partners, a financial analytics firm.
This all started on Sunday, when Gill began posting on his Twitter account with a picture of a gamer leaning forward in a chair, followed by clips of scenes from “Ferris Bueller’s Day Off,” “V for Vendetta,” “Breaking Bad,” and other shows and movies. His reemergence was enough to power GameStop’s stock increases, even though the company faces financial struggles now that gamers have shifted away from physical games toward digital downloads.
GameStop also missed Wall Street expectations in last month’s fourth-quarter earnings report, raking in revenues of $1.79 billion vs. the $2.05 billion Wall Street anticipated.
Gill began investing in GameStop in 2019 and inspired investors to enter the market after posting screenshots of his trading account on Reddit (where he goes under the username DeepF—ingValue). At one point, his investment in GameStop was valued $48 million, according to Reuters, although the news outlet said it could not independently verify how much he made.
Before the 2021 rally, hedge funds were shorting GameStop stock. In short selling, investors will borrow shares from brokers, sell them, then wait for the share price to drop. They will then buy that stock back at a lower price, return the stock, and then pocket the difference.
But if the price keeps rising, short sellers might scramble and buy back their stock, which will cause the share price to increase even more. This is what’s known as a short squeeze. Traders on the subreddit wallstreetbets coordinated the 2021 short squeeze by encouraging each other to buy shares and call options, which are contracts that allow you to buy shares for a certain price by a certain date.
In late January 2021, GameStop stock rose nearly 135% in its biggest one-day surge. At the time, individual investors also drove AMC, BlackBerry and Bed Bath & Beyond shares to rise.
By the end of the month, shortsellers had lost nearly $20 billion on GameStop. While we’re currently seeing a resurgence of these stocks, some experts say they don’t think we’ll see the same buying frenzy we saw in 2021, reported Reuters.
“This meme rally maybe rhymes with 2021 but is unlikely a repeat,” Ben Laidler, global markets strategist at digital brokerage eToro, told the publication.
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