May 30, 2024

Shares of GameStop and AMC, both meme stocks that have been boosted this week by the online return of investor “Roaring Kitty,” fell sharply in pre-market trading on Wednesday, as some of the excitement already seems to have abated.

GameStop stock was down almost 15% before the bell, while AMC shares fell almost 8%.

Meme stocks are company shares that become wildly popular online and are hotly traded by investors, most of them individual rather than institutional, sending prices soaring regardless of the company’s actual performance.

After “Roaring Kitty,” whose real name Keith Gill, made a cryptic post on X on Sunday that was interpreted by fans as a sign to begin trading GameStop stock again, the company’s shares shot up. GameStop stock closed up almost 75% on Monday, and ended the day another 60% higher on Tuesday. Other meme stocks, like AMC, also rallied on the tailwinds of the renewed meme stock frenzy.

While meme stocks are geared toward retail investors, they also pose problems for hedge funds and other short-sellers — traders who bet that stocks will fall by borrowing shares and selling them high with the belief that they can be repurchased later at a lower cost — because they send share prices soaring, costing these investors money.

Gill drove the first short-squeeze of the video game retailer’s stock in early 2021, which saw its shares surge more than 1,000% in a matter of weeks. After a three-year hiatus, fans were largely expecting a sustained GameStop rally reminiscent of the historic pandemic-era squeeze.

Dan Egan, the head of behavioral finance at investment advisor Betterment, predicted that the current meme stock rally will be shorter-lived than the last.

“There might be a large body of meme stockholders who bought during the last rally looking to get out,” Egan said. “People with a losing stock will be motivated to sell as soon as they’re back to even, which will put some downward pressure on the price as it hits higher price points.”

More on GameStop, AMC, and the meme stocks rally

GameStop short-sellers have lost more than $2 billion as the meme stock rally continues

‘Roaring Kitty’ brought back the GameStop meme stock frenzy. Here’s what to know about him

It’s not just GameStop and AMC. These meme stocks are also rallying

GameStop meme stock mania is back. Here’s what happened last time

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