Meme stocks are once again shaking up Wall Street, and it shouldn’t come as a surprise. Ever since groups of small-time, retail investors began driving up the stock prices of struggling companies to astounding levels three years ago, the potential for more flare-ups has been evident.
However, there are some differences this time around. The biggest change from the initial surge in GameStop’s stock is that the experience of 2021 has made this all feel familiar. This familiarity, along with some changes in the market, should allow Wall Street to better handle the sharp movements and make realistic expectations, according to experts.
One thing that remains the same is the risk of losing everything while chasing the potential for quick profits when dealing with such volatile stocks.
Recently, GameStop and other meme stocks from the pandemic era, such as AMC Entertainment, have seen their stock prices soar suddenly and sharply. Financial analysts and professional investors who focus on factors like profits, cash flow, and interest rates would argue that these rapid increases are not justified by the companies’ financial prospects.
The current surge in meme stock prices appears to have been triggered by a burst of momentum brought on by buyers, possibly sparked by a post from a person known as Roaring Kitty, who was a central figure in the initial GameStop frenzy.
The reaction to the recent meme stock rally has been manic, with trading halts occurring frequently due to the sharp price swings. However, the scale of the current rally is not as large as the one seen in 2021.
Some differences in the current situation include the fact that meme-stock companies now have more shares trading in the market than they did in 2021, which could reduce the chances of a “short squeeze” – a relatively rare event that can lead to massive profits for those riding the wave.
It’s important to remember that the momentum can shift just as quickly in the opposite direction. While meme stocks like GameStop and AMC have seen significant gains in recent days, their prices are still well below the highs reached during the 2021 frenzy.
Investing comes with considerable risks, and investors must be aware that the potential for “get rich quick” profits in a meme stock is accompanied by the risk of losing everything.