Media, Entertainment and Sport

Explainer: What are meme stocks?

Meme stocks are company shares with large communities of online and social media followers.

Meme stocks are company shares with large communities of online and social media followers. Image: Unsplash/Maxim Hopman

Victoria Masterson
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  • Meme stocks are company shares with large communities of online and social media followers.
  • Online posts about these stocks can drive big peaks and crashes in their share prices.
  • Meme stocks include GameStop, Bed, Bath & Beyond and cinema chain AMC.

On social media, a meme is typically a funny image or video clip that spreads widely and rapidly as people share it.

The world of stocks and shares has memes too.

They’re called meme stocks and they’re hugely influenced by online sentiment.

What are meme stocks?

Meme stocks are company shares on the stock market that have gone viral because of their popularity on the internet, explains investing platform

Social sentiment is a big factor in driving this popularity – as opposed to focusing on economic or corporate performance.

When people buy shares after reading about them on social media, it can lead to an “artificial” price rise, followed by an “inevitable crash,” says personal finance website The Balance.

An infographic showing how meme stocks work
There are winners and losers in meme stock investing. Image: The Balance

How does social media influence the price of meme stocks?

Conversations and posts on websites and social media sites like Reddit, Twitter and Facebook can influence the price of meme stocks, Investopedia explains.

It describes the buzz that builds around meme stocks as “hype” and explains that meme stocks can have a “cult-like following”.

These online communities can help to drive the share price of meme stocks very high, and also very low, explains.

When did meme stocks start?

Meme stocks emerged in 2020 from a forum on Reddit called WallStreetBets. Users of this site and others work together to “identify target stocks and then promote them, while also putting their own money to work,” says Investopedia.

Unlike short term ‘pump-and-dump’ share investing schemes, meme stock investors aim to boost a company’s share price above its current level and keep the value higher by continuing to hold the stock, Investopedia adds.

Some examples of meme stocks?

American video game and electronics retailer GameStop is regarded as the first meme stock.

Its stock price rose more than 10,000% from $3.25 in April 2020 to $347.50 in late January 2021, according to The Guardian newspaper.

Investopedia describes this price hike as a “spectacular short squeeze”. This happens when a large number of investors bet on a share price falling.

Other meme stocks include cinema chain AMC, home retailer Bed, Bath & Beyond and commercial spacecraft developer Virgin Galactic, all based in the United States, according to investing website Business 2 Community.


Who wins and loses from meme stock investing?

Investors have won and lost millions in the meme stock craze.

Meme stock losers include consumers who buy into meme stocks at their peak, only to see them fall, The Balance notes.

Other losers have included hedge firms – investment firms who use strategies including betting on share prices falling. These firms lost about $19 billion when GameStop shares rose, Insider magazine reported.

Meme stock winners include GameStop investor Ryan Cohen, who paid $76 million for a 13% stake in GameStop in 2020. This rocketed in value to more than $1.3 billion when GameStop’s shares spiked in January 2021, according to CNBC.


Is the meme stock craze over?

Stock markets are much gloomier than they were in January 2021 and most meme stocks have dropped sharply from their highs, Reuters reported in January of this year.

That said, some meme stock shares are still worth more than they were before the meme stock craze started. At roughly $30, GameStop shares, for example, are about 76% above their $17-a-share level before meme stock investors got involved at the beginning of 2021.


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