Gamestop, AMC… Can meme stock fever really make a comeback on Wall Street?

(BFM Bourse) – Gamestop and AMC experienced a violent buying surge this week, with individual investors banding together to boost their prices. But the repetition of the “meme stock” wave of 2021 comes up against an environment that is much less favorable to this type of phenomenon.

It floated on the market this week like a scent of early 2021. “Meme stocks” were then appearing on Wall Street.

In the midst of a pandemic, individual investors exchanged on social platforms, such as Reddit and in particular its wallstreetbets forum, and decided to carry out joint actions to list the massacred securities that they liked on the stock market. With the rise of the Robinhood trading platform and the appearance of many individual traders during the pandemic, these movements led to sharp increases in certain stocks. This forced short sellers (the “shorts”) to unwind their positions in a hurry in the face of the losses they were suffering. This is what we call a “short squeeze”.

Several “meme stocks” have thus appeared, including the most famous, the video game distribution group Gamestop, known in particular here with the Micromania brand. Its action had gained 2,000%. Other stocks have joined this category, such as the cinema operator AMC, the homewares specialist Bed Bath & Beyond (which was delisted from Nasdaq in 2023 after its bankruptcy), or even Blackberry, Nokia and the aerospace group Virgin Galactic.

Three years later, a buying fever once again took hold of Wall Street, at least on GameStop and AMC shares, at the start of the week. The first gained 74.3% on Monday and 60% on Tuesday, the second 78.4% and 32.6%.

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“Roaring Kitty” roars again

The origin of this increase? A priori a few messages posted on X (formerly Twitter) but not by just any account. Absent from the network for almost three years, private investor Keith Gill, who uses the pseudonym “roaring Kitty”, first published an illustration showing a video game player with a controller in hand, who is straightens up in his chair, to illustrate a renewed concentration. This post has been viewed 27 million times. He then published a series of videos taken from different films, such as those from Marvel, “Drive”, “V for Vendetta”, or even series like “Peaky Blinders” or “Game of Thrones”.

These posts were interpreted by the market as a return to business for this investor, who had been at the origin of the buying fever on Gamestop in 2021, via his rave analyzes on Reddit.

It didn’t take much for individuals to rush into Gamestop and AMC shares. To a lesser extent, the movement trickled down to other “meme stocks”, Blackberry taking 7% then 11.4%, Monday and Tuesday, while Virgin Galactic gained 7.7% and 22.3%.

This speculative surge is obviously disconnected from fundamentals, with traditional investors hardly appreciating Gamestop, a company considered overvalued in relation to its financial statements and its prospects.

Moreover, Gamestop and AMC then significantly lost ground in the following sessions, losing 19% on Wednesday and 30% on Thursday.

for the first, and 20% then 15% for the second

Very different conditions

However, could the upward movement at the start of the week herald a real repeat of the 2021 phenomenon and could cause new “meme stocks” to appear? Not sure.

According to Reuters, several analysts strongly doubt this, because current economic conditions, with the end of low rates and therefore cheap money, should not allow this speculation to continue.

“This rally may be synonymous with 2021, but it is unlikely to happen again,” explains Ben Laidler, global markets strategist at digital broker eToro, quoted by the agency.

This observation is shared by Alexandre Baradez, head of market analysis at IG France. “These incredible increases are obviously reminiscent of the very speculative period of 2021 but there is no chance that we will relive a period of the same intensity. First of all because the current monetary environment is absolutely no longer the same as at the time, whether in terms of rates or liquidity,” he explains.

“In 2021, the main rates of the Fed and the ECB were at 0% after the Covid shock and liquidity was flowing freely with an extraordinary swelling of the balance sheets of the Fed and the ECB (several trillions of dollars in a few months only). These ultra-accommodating monetary policies coupled with the ‘whatever it costs’ measures of States had created the perfect speculative environment”, continues the specialist.

Even poor quality companies saw their prices soar. “A good benchmark is that of the Refinitiv index of the most ‘shorted’ American stocks coupled with the Goldman Sachs index of non-profitable technology stocks. Between May 2020 and February 2021, the Goldman Sachs index of non-profitable technology stocks profitable had soared by… 225%! And the index of the most shorted American stocks had also climbed by 160% over the same period,” explains Alexandre Baradez. “Before crashing completely afterwards,” concludes the analyst.