GameStop stock skyrockets by 73% following major meme stock investment

GameStop's shares surged by almost 73% in pre-market trade on Monday, showing that the hype around meme stocks is still going strong.

The stock of the video game retailer skyrocketed following a Reddit post made by stocks influencer Keith Gill, also known as "Roaring Kitty," where he disclosed purchasing nearly $116 million worth of GameStop stock.

Gill's Reddit account remained inactive for over three years until he made his first post during the GameStop (GME) hype fueled by social media.

Meme stocks are shares whose value fluctuates greatly based on their popularity among online trader communities, rather than the fundamental traits of the companies. This trend began with GameStop in 2021 and spread to other companies like AMC Entertainment (AMC) and Bed, Bath and Beyond, which has now filed for bankruptcy.

The GameStop Corp. app on a smartphone arranged in Hastings-On-Hudson, New York, U.S., on Friday, Jan. 29, 2021.

The GameStop Corp. app on a smartphone arranged in Hastings-On-Hudson, New York, U.S., on Friday, Jan. 29, 2021.

Tiffany Hagler-Geard/Bloomberg/Getty Images

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Gill caused GameStop shares to skyrocket last month by sharing a meme on X featuring a man leaning forward in a chair while holding a video games console. This was his first post on that platform in three years. Interestingly, GameStop had also shared a similar cartoon back in February.

The meme is believed to symbolize a moment when things become serious, as stated by the website Know Your Meme.

Gill was a key contributor on the WallStreetBets subreddit, a platform where Reddit users discuss specific topics. His posts played a significant role in the dramatic increase in GameStop's stock value in 2021. Retail investors rallied behind the stock, taking aim at short-sellers who had bet on GameStop's value dropping.

Short-sellers try to profit by borrowing shares from a company, selling them, and then buying them back at a lower price before returning them. This strategy allows them to make money when the stock price falls.

During his testimony to the US Congress on the GameStop mania in 2021, Gill referred to himself as a casual daytime trader. He clarified that his intention was not to contribute to the GameStop frenzy, but rather he saw the stock as a promising opportunity for investors.

Editor's P/S:

The resurgence of GameStop's stock, fueled by the Reddit post of Keith Gill, highlights the enduring power of meme stocks. Gill's influence on the market, despite his absence for over three years, demonstrates the sway that online communities can hold over the value of certain stocks. This trend, which began with GameStop in 2021, has extended to other companies, such as AMC Entertainment and Bed, Bath and Beyond.

The volatility of meme stocks raises concerns about the disconnect between their market value and the underlying fundamentals of the companies they represent. The sharp fluctuations in these stocks can be attributed more to the hype and sentiment within online trader communities than to the financial health of the companies themselves. This raises questions about the long-term sustainability of these investments and the potential risks for individuals who choose to participate in this type of trading.