GameStop and AMC shares plunge as meme stock rally fizzles after just 2 days
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Traders work as a screen displays the trading information for GameStop and AMC at the New York Stock Exchange on May 15, 2024.
PHOTO: REUTERS
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NEW YORK - The meme stock rally that added about US$11 billion (S$14.8 billion) in value to GameStop and AMC Entertainment Holdings faltered on May 15, wiping out a large swath of the gains in the first minutes of trading.
Video game retailer GameStop fell 19 per cent, while AMC lost 20 per cent after the beleaguered cinema chain took advantage of its equity rally through a private deal to reduce its debt. The stocks had more than doubled over the first two days of the week, before the May 15 slide erased more than US$4 billion in market value between the two.
The latest rout brings further echoes of the meme insanity that gripped markets in early 2021. Then, GameStop soared by more than 1000 per cent in a matter of weeks before rapidly unwinding much of the gains. The stock swung for months, never fully regaining its early heights, before the retail mania finally dissipated.
The conditions that drove the surge in stock prices then are no longer present, so this time around the rally may not last as long, said Mr Ben Laidler, global markets strategist at eToro.
“This time it is different,” he said. “The pandemic lockdown is over. Excess consumer savings are largely long spent. Short positions in these stocks are much smaller though not small. Interest rates are much higher.”
AMC said in a filing on May 15 that it would issue shares to cut about US$164 million of its debt in a private deal that valued the stock, based on the principal exchanged and the accrued interest, at US$7.33 per share. On May 13, the company said it completed an equity offering to raise about US$250 million, selling 72.5 million shares at an average price of US$3.45 per share. The stock ended May 10 at US$2.91, and closed on May 13 at US$6.85 following the two-day surge.
Social media posts this week by Mr Keith Gill, who drove the meme stock mania of 2021 under the moniker Roaring Kitty, made for effective kindling for this latest rally. Mr Gill shot to fame that year by rallying day traders on Reddit in an effort to squeeze GameStop short-sellers.
Traders betting against some of the most heavily shorted stocks are racking up big paper losses. Meanwhile, option activity on GameStop continued to surge on May 13, with total trading volume hitting their highest level since 2022, and almost 820,000 contracts traded.
AMC and GameStop were among the top 10 securities bought by retail investors on May 13, with respectively US$51 million and US$16 million daily inflows, said Vanda Research head of data Giacomo Pierantoni.
This week’s rally also boosted other high-risk and heavily shorted stocks as traders looked to stocks beyond GameStop and AMC. Some of this week’s big winners have included SunPower and Virgin Galactic Holdings, both of which fell on May 15. BLOOMBERG
