As AMC and Gamestop stocks plunge, are meme stocks over?
After meteoric rises in 2021, meme stocks have been cratering. Are they dead, or will they bounce back?
Shares of AMC (AMC) dropped 21% to a low of US$14.23 Monday morning US time and are down roughly 49% this year. Likewise, Gamestop (GME) fell 19% to a low of US$86.29. The stock is down about 44% so far this year.
Losses are mounting for the stocks that saw explosive gains in early 2021 after gaining popularity among retail investors through social media. Many pulled back from the highs but remained well up for the full year.
So is this the end for meme stocks?
How some of the top meme stocks have performed since 2021
It's been nearly a year since the meme stock craze took off.
Let's take a look at how some of the original meme stocks have performed since skyrocketing in 2021.
| Company | Peak market cap 2021 | Increase 2021 | 1-year perf | 6-month perf | YTD performance | Market cap 24 Jan 2021 |
|---|---|---|---|---|---|---|
| Gamestop (GME) | US$21.1 billion | 1,625% | +26.59% | -47.15% | -36.40% | US$7.5 billion |
| AMC (AMC) | US$28.5 billion | 2,695% | +280.77% | -58.23% | -36.54% | US$8.6 billion |
| Bed, Bath & Beyond (BBBY) | US$4.3 billion | 99% | -54.04% | -52.73% | -6.99% | US$1.4 billion |
| BlackBerry (BB) | US$8.1 billion | 114% | -55.30% | -20.67% | -13.98% | US$4.6 billion |
| Nokia (NOK) | US$35 billion | 59% | +12.16% | -6.85% | -13.51% | US$31.7 billion |
| Koss Corp (KOSS) | US$520 million | 1,760% | +38.33% | -56.59% | -29.90% | US$75.8 million |
These stocks are now well off their Reddit-fueled all-time highs. All told, the value of these stocks are down roughly US$43 billion from the time they individually peaked in 2021.
What happened?
The steep sell-offs aren't being driven by any alarming news from or about these companies, and it isn't just meme stocks that have been hit hard in recent months. Many stocks are coming off their worst week since the pandemic's start in March 2020.
Investors have been fleeing riskier, speculative stocks and pulling their money out of high-growth tech stocks over the last few months as Fed rate hike fears continue to mount. Investors are likely becoming more risk-averse, and highly speculative stocks like meme stocks seem to be losing their luster.
This is very different from a year ago when retail investors were more or less propping up these stocks. Many had been heavily shorted by hedge funds betting they'd fall further and even go out of business.
Can the memes turn around?
While the market seems to be saying the craze is over, with many of these stocks well off their previous highs, meme stocks are difficult to predict. They typically rely on hype to get traders and investors to buy in, and new ones are popping up all the time.
Stocks with high short interest tend to draw a trading frenzy as they're ripe for short squeezes similar to Gamestop's. There's even been talk of meme stocks becoming an asset class of its own.
These stocks remain highly speculative, but meme traders are likely here to stay. It'll be interesting to see if they give up these names in 2022, look elsewhere or dig deeper.
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At the time of publication, Matt Miczulski owned shares of AMC.
