Toronto, Canada – The enthusiasm of investors for “meme stocks” seems to be fading, as shares of GameStop, AMC Entertainment, BlackBerry, and other companies favored by retail traders took a hit on Wednesday morning.
GameStop, after experiencing a surge of over 130% earlier in the week, saw its shares plummet by 33% to $32.44 during Wednesday morning trading. Similarly, AMC Entertainment, a prominent theater chain, experienced a loss of 26%, while BlackBerry, a business software maker, fell by 9%, and Virgin Galactic, Richard Branson’s space flight company, dropped by 14%.
The surge in these stocks was fueled by the return of Keith Gill, known online as “Roaring Kitty,” after a three-year absence from X. Gill, who has a significant following on social media, gained attention in 2021 for his successful investment in GameStop. However, meme stocks like these come with risks for small investors, as they are often characterized by volatility and high levels of speculation.
Meme stocks are companies whose share prices are boosted by social media hype rather than traditional financial metrics like growth and profitability. For example, GameStop has faced challenges in expanding, with the company reporting a net loss of $331.1 million in the fiscal year 2023. Similarly, AMC Entertainment disclosed a $135 million loss in the first quarter, as the movie industry struggled with a limited box office lineup due to past strikes.
As the buzz around meme stocks subsides, AMC Entertainment took the opportunity to raise $250 million by selling nearly 73 million shares. The company also engaged in a debt-for-stock swap, which contributed to its recent stock gains. However, market analysts have noted that this surge may not be sustainable, as previous instances of meme stock hype have ended with sharp declines.
While investors may be hopeful for a repeat of the 2021 meme stock rally, experts warn against relying on speculative investments with uncertain outcomes. As history has shown, the initial excitement surrounding meme stocks often gives way to reality, leading to significant price corrections and losses for unwary investors.