There’s a slim chance you could get there with a winning lottery ticket, a rich uncle you didn’t know about, or a killer meme stock trade in which you happen to get in (and out!) at the right time. Meme stocks are actual stocks listed on exchanges and available for trade. However, critics argue that their price performance and appeal have little to do with their fundamentals and much to do with their entertainment value as speculative playthings, much like casino games. While GameStop was the first successful meme stock, it was not the only one. WallStreetBets users quickly identified other downtrodden stocks with heavy short interest to boost. These included AMC Entertainment Holdings Inc. (AMC), the movie theater chain that saw flagging profits amid the COVID-19 pandemic, and Blackberry Limited (BB), the outmoded smartphone maker.
Why Are They Called Meme Stocks?
Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook. Meme stocks are real stocks that have typically received an inflated value due to their popularity on social media. This value doesn’t often align with the actual success of the company that issued the stock.
What is a Meme Stock? (A Guide for the Curious Investor)
As a result, meme stocks can become overvalued relative to fundamental technical analysis. A meme stock refers to the shares of a company that have gained viral popularity due to heightened social sentiment. This social sentiment is usually due to activity online, particularly on social media platforms. These online communities can dedicate heavy research and resources toward a particular stock.
While some thought that the meme stock craze would be short-lived, the phenomenon remains in force years later. Meme stock communities pumped the brick-and-mortar retailer Bed Bath & Beyond (BBBY) to extreme levels in the summer of 2022, when it was up 314% for a short period before crashing back down. Memes began to take the form of humorous social media posts and viral videos with the advent of the internet. Meme stocks are so-named because ideas about them spread rapidly on social media and web forums. Meme stocks also see communities built around them that promote the hype and elaborate on the original meme, inventing specific terms and symbols to accompany the stock. In 2022, Bed Bath & Beyond announced intentions to sell 12 million shares in a secondary offering as meme stock promoters pumped the value of its stock.
FinanceBuzz is not a financial institution and does not provide credit cards or any other financial products. Yes, you typically have to pay taxes on meme stocks or any other type of similar investment. The general rule is that you have to pay short-term or long-term capital gains rates on any stock you’ve owned, depending on whether you held the stock for less or more than a year. These retail traders also noticed that GameStop stock and a few other stocks were heavily shorted by Melvin Capital, a large hedge fund worth more than $12 billion at the beginning of 2021. Melvin shorted GameStop, which means it bet that stocks of GameStop and other companies would continue losing value.
Social sentiment: How meme stocks popularize
This popularity may lead to an increase in the value of a stock, but typically not in a predictable or lasting way. The value also tends to have little to do with the actual success of a company. We receive compensation from the products and services mentioned in this story, but the opinions are the author’s own. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
Then, in January 2021, the short squeeze that The Roaring Kitty had suggested earlier took place in earnest, with the price of GME shares exploding to nearly $500 amid a frenzy of short-covering and panic buying. It is not using the bladerunner forex trading strategy properly to make money as extreme an example as GameStop, but given the high-profile presence of CEO Elon Musk, it remains a company whose shares that can rise and fall based on online chatter. Mercedes Barba is a seasoned editorial leader and video producer, with an Emmy nomination to her credit.
What is a ‘short squeeze?’
- Plans are self-directed purchases of individually-selected assets, which may include stocks, ETFs and cryptocurrency.
- When large amounts of retail investors band together, the upswings can be dramatic.
- To participate, you need to be connected to the relevant social media sites.
- FinanceBuzz is an informational website that provides tips, advice, and recommendations to help you make financial decisions.
- Because meme stocks depend on social popularity rather than company performance, they have their own set of risks and rewards.
Both prices and trading volumes of meme stocks may be exceptionally volatile, as the hype on platforms like Reddit can cause spikes in demand. The price performance of meme stocks is generally not based on changes in the underlying company’s fundamentals or financial performance. So-called meme stocks became a hot investment theme for day traders and retail investors early in 2021, resulting in short squeezes on hot stocks at the time such as GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC). Named after the virality of internet memes found on social media, these stocks saw online communities form around them to boost and hype their prospects, even though meme company fundamentals remained questionable. GameStop and other such meme stocks are publicly traded equities whose stock price is heavily influenced by social media. “Both prices sussex advice firm being wound up following svs securities british steel debacle and trading volumes of meme stocks may be exceptionally volatile, as the hype on platforms like Reddit can cause spikes in demand,” Britannica Money also wrote.
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved or otherwise endorsed by these entities.
Theres also AMC Entertainment (AMC), an unsuspecting company struggling amid the COVID-19 pandemic. AMC shares ballooned 1,496.02 percent in the five months ending June 1. Most notably, GameStop (GME) took the world by storm despite obstacles that accompany brick-and-mortar storefronts in the digital age. GME shares grew 1,914.55 percent the wisdom of finance in the first few weeks of the year.
Big investors stand to lose money on their short sales if a shorted stock becomes the subject of a meme and its price increases. Social media users may also get excited about the prospect of Wall Street investors losing money, so they may further rally behind such a stock. Meme stocks often involve companies that Wall Street investors have written off. In other words, hedge funds and big investors view the stocks of these companies as not investment-worthy. That is unless you’re doing specific types of investments, such as a short sale.
Its also a symbol of market democratization, something that everyday investors have been working toward for decades. There are also YouTube content creators, Facebook communities, Twitter hashtags, and even Discord chats propelling these meme stocks into fame. Lets cover how meme stocks work, what to look for in the next meme stock, and how companies like AMC and GameStop got to where they are today. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations. We believe everyone should be able to make financial decisions with confidence.
This can sometimes lead to an overvaluation of the stock as communities attempt to drive up the price of normally shorted shares. A shorted stock is a stock which is borrowed from a broker and then sold, with the seller banking on buying it back later for a lower price. However, a short squeeze can occur when those borrowed stocks rise in price rather than fall. Part of the challenge in explaining the price movements of meme stocks is that the change in share price can’t be explained by the fundamentals of the underlying businesses. GameStop’s sales fell about 11 percent in its 2023 fiscal year compared to 2022 and fell nearly 20 percent during its fourth quarter. The company earned just $6.7 million in net income in 2023, which is far from justifying its market value of over $9 billion.
They allow people to rapidly spread humorous, interesting, or sarcastic videos, images, or posts to others around the world. The rapid and multiplicative effect of sharing such posts could make them go viral. FinanceBuzz has partnered with CardRatings for our coverage of credit card products. FinanceBuzz and CardRatings may receive a commission from card issuers. Legendary investor Warren Buffett offered an observation on market behavior in his 2023 letter to Berkshire Hathaway shareholders. This article explores the meaning of a meme stock, what causes it and what are its likely consequences for the investor.
