Meme stocks dominated both conversations and speculative trading action across the investing universe over the past couple years. But what makes a stock “go viral” and turn into a meme stock? And why do headlines warn they usually burn investors more often than making them rich?
Let’s explore what meme stocks are, peek behind the recent hype, and understand keys to navigating their rollercoaster moves.
What is a Meme Stock?
A meme stock refers to company shares propelled higher by social media buzz and online hype rather than business fundamentals.
Think GameStop during the pandemic. Or struggling movie chain AMC Entertainment more recently. These companies faced obvious operating hurdles in shifting consumer landscapes. But viral moments driven by retail investors on platforms like Reddit’s WallStreetBets shot their stocks from depressing to euphoric (at least temporarily).
So where does the actual investing mania around meme stocks come from?
Often it starts with a heavy short interest by hedge funds and other institutional traders. Short selling is when professional investors borrow shares to immediately sell them, hoping to buy them back later at lower prices for a profit.
This sets up a game of “chicken” between short sellers and the world when overdone across lots of traders. If positive sentiment sweeps in pushing shares higher, short sellers face potentially unlimited losses. They must scramble all at once to buyback inflated shares to close dreadful short bets.
Of course average investors love sticking it to Wall Street big shots. FOMO (fear of missing out) quickly spreads these David vs Goliath moments far and wide. Add platforms like Reddit and Twitter spreading lightning fast chatter and next thing you know, retail traders create massive “short squeezes” goosing stocks like GameStop 2,500% in days!
But before you mortgage your house betting on the next viral stock rally, know that meme mania fades even faster than it appears.
Trying to time these rollercoaster rides means you’ll likely buy meme stocks when euphoria peaks only to panic when things crash back to reality in a matter of days or weeks.
Just when you swear off chasing meme stocks again, another supernova pops up luring attention. Rinse and repeat.
The smart play understands company fundamentals eventually rule over hype. Let’s explore the top meme stocks of 2022 powered more by dreams over discipline – looking at what sparked investor interest as well as reasons to proceed cautiously with each viral headline.
1. GameStop Corp (NYSE: GME)
The OG meme stock itself – GameStop – maintained its celebrity status into 2022 amongst the meme stock crowd.
It’s easy to gloss over what actually kickstarted the craziest market story of early 2021. GameStop faced existential threats trying to rightsize expenses as gaming shifts toward digital formats and online purchasing. Heavy losses and dreary store closures made it prime for short selling by Wall Street pros betting on outright failure.
But a surprise lifeline came from retail investors noticing the overcrowded short trade positioning.
A Short Squeeze For The Ages
| Date | Short Interest % of Float | Closing Stock Price | Market Cap |
|---|---|---|---|
| 12/31/2020 | 113% | $17.25 | $1.2 billion |
| 1/27/2021 – Peak | 141% | $347.51 | $24 billion |
Incredibly GameStop appreciated over 20X in value in less than 1 month – soaring briefly over $500 per share! This epic short squeeze went down as perhaps the hottest trading mania ever witnessed.
GameStop embraced its meme celebrity status in 2022. New management moved swiftly into trendy areas like NFTs and cryptocurrencies. Q4 results showed tangible progress growing gross margins and market share despite industry headwinds.
And yet GameStop still fails to erase existential doubts longer term. Burning over $400 million in cold hard cash annually makes meme hype crucial for raising funds in secondary stock offerings.
Can management continue walking the tightrope balancing meme stock publicity moments versus fixing core retail struggles?
Maybe. But betting on continued viral nostalgia seems an unwise path to profitability.
Key 2022 Events
- Launched NFT marketplace for trading video game collectibles
- Expanded fulfillment network and digital assets
- Grew gross margins from 19% to 25%
Financial Snapshot
| Metrics (TTM) | Q4 2021 | Q4 2022 |
|---|---|---|
| Revenue | $6.0 billion | $2.25 billion |
| Gross Margin | 21% | 25% |
| – Net Income | ($381 million) | ($95 million) |
2. AMC Entertainment Holdings (NYSE: AMC)
Another beneficiary from the short squeeze wave was AMC Entertainment – the world’s largest movie theater chain.
Much like GameStop, surging digital streaming competition and the devastating impacts from the pandemic made AMC a likely target for short selling. With movie fans able to replicate theater experiences at home, and attendance still muted compared to pre-COVID, AMC faced extreme uncertainty staying solvent.
Meme Frenzy Adds Twist to Streaming Shift
But perhaps no company moved as swiftly to embrace meme mania over fundamentals like AMC.
Leaning heavily into promotions like free popcorn for retail investors (“AMC Apes”), CEO Adam Aron created a feedback loop of goodwill and press. Meme publicity became crucial towards greatly reducing debts and keeping theaters open.
AMC Annual US/Canada Attendance (millions)
| Year | Attendance |
|---|---|
| 2019 (Pre-Pandemic) | 275 |
| 2021 | 110 |
| 2022 | ~175 |
Yet $5+ billion debts still weigh heavily on AMC beyond meme stock publicity boosts. Burning cash and issuing new shares dilutes equity fast even with various debt restructuring efforts.
Streaming shifts only quicken by the month too. Can AMC really support over 10,000 theater screens globally long-term against stronger digital competitors?
Key 2022 Events
- Completed over $2 billion of debt reduction
- Launched retail investor connect platform AMC Investor Connect
- Leveraged meme interest into raising new liquidity
Tapping meme mania granted AMC a lifeline no strategist could predict. But ignoring declining theater attendance growth forecasts seems unwise beyond short term hype boosts.
3. BlackBerry Ltd (NYSE: BB)
BlackBerry resonated through meme stock chatter thanks to brand nostalgia from its days pioneering smartphones. Attempting to pivot towards software and security beyond struggling hardware sales has proven a long slog.
Still, BlackBerry continued seeing its stock float higher on fumes of meme hype rather than convincing turnaround proof points. Patents sales and minor wins expanding platforms like QNX auto software stirred investor interest despite years of false starts.
BlackBerry Financial Results
| Metrics (TTM) | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $912M | $893M |
| + Loss from Operations | (—$166M) | (—$1.1B) |
| Revenue Growth (YoY) | 2% |
But many wonder whether today’s BlackBerry retains any unique advantages as once iconic brands like Apple and Google dominate mobile. Cybersecurity presents bigger opportunities on paper, yet growth projections sharply lag hot upstarts.
Cybersecurity Market Growth Estimates
| Company | 2022-2029 CAGR Estimate |
|---|---|
| BlackBerry | 9% |
| Zscaler | 29% |
| Palo Alto Networks | 24% |
With modest cash reserves and consistent struggles gaining sales velocity, BlackBerry must gain relevance fast before meme hype fades.
Key 2022 Events
- Expanded AWS partnership around vehicle data and cloud services
- Stronger-than-expected Q4 earnings
- Patent sale generated net gains to aid slim profitability
Of all struggling companies kept afloat by meme mania, BlackBerry perhaps least convinces on orchestrating a successful long-term turnaround.
4. Tesla Inc (NASDAQ: TSLA)
Tesla’s inclusion on any meme stock list seems strange given its trillion dollar size. Yet eccentric CEO Elon Musk ensures TSLA checks all the boxes.
Few founders play meme stock celebrity as well as Musk. Trolling critics alongside stoking company hype keeps retail investors glued to Tesla’s every move – both good and ugly.
Tesla’s Meteoric Rise
| Date | Market Cap | Share Price |
|---|---|---|
| IPO (2010) | $2B | $17 |
| Jan 2022 Peak | $1.2T | $1,229 |
And fundamentals largely justify the hype…so far. Tesla continues eating legacy auto competitors alive taking EV share. 2022 saw muscular factory expansions, splashy new models teased, plus wider profitability.
Share of EV Sales (USA)
| Company | EV Sales Share Q3 2022 |
|---|---|
| Tesla | 65% |
| Ford | 9% |
| Hyundai/Kia | 5% |
Still many wonder whether Tesla warranting 3X the market cap of the rest of the auto industry combined makes sense long term. And CEO Musk himself created meme mania in reverse towards yearend.
Tesla Stock Drawdowns YTD
| Decline Period | Share Price Drop | Key Event |
|---|---|---|
| Jan 2022 – Today | —73% | Musk Twitter Buyout |
| Nov 2021 – Jan 2022 | —36% | Musk Stock Sales |
With Tesla still dominant in EV leadership, product innovation, and miles ahead on autonomous driving, the company likely powers higher sales again post-recession.
Yet sustainability getting valued this far ahead of actual results worries many skeptics. And meme stock celebrity acts like Musk’s Twitter circus could see retail investors flee during the next big growth stumble.
Beyond the Big 4 Meme Stocks
Beyond the largest meme stock stories capturing all headlines sat other names seeing huge retail investor interest during 2022 as well…
Bed Bath & Beyond (NASDAQ: BBBY)
Meme traders dove into struggling retailer Bed Bath & Beyond. Facing similar digital disruptions rapidly shifting consumer shopping like GameStop, heavy short interest left it primed for short squeeze speculation.
Leadership shakeups, cost cutting efforts, and inventory controls all worked temporarily. Yet like BlackBerry, Bed Bath must gain relevance rapidly as big box chains fade.
Nokia (NYSE: NOK)
Former mobile phone hotness Nokia won over millennial meme traders given many grew up with their old school devices. The company’s push towards 5G network equipment and expanding new growth frontiers like fiber optic connectivity helped keep interest alive despite years of reinvention struggles.
Virgin Galactic (NYSE: SPCE)
Richard Branson’s ambitious space tourism plans seem manufactured for meme chatter. What sparks more excitement than launching amateur astronauts towards low-earth orbit? Delays and safety mishaps have pushed commercial flights to 2023, threatening to dim retail investor enthusiasm without progress soon.
Palantir (NYSE: PLTR)
Controversial big data magnate Palantir captures meme buzz between Alex Karp’s eccentric leadership style and the company’s secretive artificial intelligence (AI) offerings leveraged globally by corporations and governments alike. Sales growth above 30% keeps Wall Street more upbeat on Palantir’s long-term trajectory.
In Review: Why Investing in Meme Stocks Remains More Lottery Ticket Over Long-Term Bet
As we just explored, companies swept up as meme stocks vary wildly. The reasons underlying sudden hype spikes can greatly differ across frozen legacy brands, risky upstarts, all the way to proven market leaders.
What ties meme stocks together gets built on shaky foundations however. Viral moments most often vaccine investors against the vital ingredients necessary for long-term profits – real revenues, market share gains, technological advantages.
Sure GameStop, AMC, and meme stock brethren exploit social buzz successfully to:
- Raise capital
- Reduce debts
- Gain consumer excitement
Difficult business model pivots become easier when your stock suddenly trades like a hot internet cryptocurrency!
But without Tangible Improvement in actual company performance over the coming years, almost all meme stocks shrivel back to mediocrity (or worse) when retail trader interest inevitably moves elsewhere.
In other words: what goes up on hype often comes crashing down in the same epic fashion once momentum reverses.
The life cycle of most meme stocks follows a familiar arc…
- Heavy short interest kickstarts a short squeeze
- Retail investors pile in fueled on meme hype
- Stock goes exponential – growth multiples make no sense!
- Insiders sell new stock offerings at the top
- Fundamentals reassert gravity – shares come plunging back
Don’t assume you’ll predict and time explosive meme runs flawlessly. And never believe corporate boards spinning viral moments into credible business plans guaranteeing happier endings.
Tread carefully if embracing meme mania at all. The smart money uses extreme volatility to trade short-term price spikes, but never assumes meme celebrity status outweighs weak competitive positioning or financials longer term.
Most who get lured into buying meme stock tops stay trapped when rallies inevitably unwind. Instead target companies with clear paths towards increasing sales, earnings and free cash flows for sustainable wealth building.
