Meme stock rally loses steam as GameStop and AMC decline

GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc. (NYSE: AMC) are experiencing a second consecutive day of decline as the frenzy surrounding meme stocks that dominated earlier this week begins to fade. On Thursday, GameStop saw a decline of up to 20%, while AMC was down by 12%. The surge in meme-trading activity had propelled these stocks upward during the first two days of the week, but momentum waned on Wednesday, leading to significant losses that wiped out a substantial portion of the $11 billion increase in market value.

According to Matthew Tuttle, CEO of Tuttle Capital Management, stocks like GameStop and AMC, lacking fundamental support, cannot maintain their elevated levels without sustained investor interest. This recent volatility evokes memories of the meme stock phenomenon of early 2021 when retail traders on platforms like Reddit propelled GameStop and AMC to record highs. Keith Gill, known online as “Roaring Kitty,” gained prominence for rallying traders around GameStop. A post from Gill’s account on the X platform on Sunday sparked the recent surge in activity.

While short sellers have been rattled by this week’s fluctuations, they remain relatively subdued compared to the extreme volatility witnessed in 2021, when GameStop’s stock price skyrocketed by over 1,600% in January. However, GameStop has yet to reach the peak levels it attained during that period. Tuttle noted a shift in sentiment among investors since the height of the pandemic, suggesting a more cautious approach to trading meme stocks.

GameStop, according to analyst estimates, is not expected to generate profits until the holiday quarter and currently trades at a forward earnings multiple exceeding 1,200, making it the highest among US-listed stocks with market capitalizations exceeding $1 billion as of Wednesday’s close. Meanwhile, AMC has taken advantage of the surge by completing a previously announced equity offering and entering into a private agreement to exchange shares to reduce its debt burden. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, cautioned against the inflated valuations of these stocks and highlighted the risks associated with speculative trading.

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