GameStop, the video game retailer with over 5,000 stores across the world, seemed to be nearing financial collapse in recent years after its stock value dropped from around $16 per share to under $4 in early 2019. Despite the industry’s gains driven by widespread COVID-19 lockdowns in 2020, GameStop’s stock value remained below $5 per share.
However, in recent days, GameStop’s stock value has soared, increasing over 8,000% compared to only a few months ago. According to Business Insider, “between January 20 and January 26, GameStop’s stock value leaped from just over $35 per share to north of $140 per share,” and “by January 27, it hit new highs of over $325 per share.”
As reported by Yahoo! Finance, “The shares rose 157% to a session-high of $380 shortly after 11 a.m. in New York, leading to at least two volatility halts. The advance means the video-game retailer’s market value has risen more than 20 times this month alone to about $26 billion, making GameStop bigger than more than a third of the companies in the S&P 500 Index.”
The reason for this monumental rise in stock value actually has little to do with the actions of GameStop itself, or even the video game industry. Instead, a Reddit forum “dedicated to playing the stock market” is largely responsible for GameStop’s explosive stock market growth.
With millions of members, the forum r/wallstreetbets — the subreddit Wall Street Bets — seems to be the driving factor behind GameStop’s fortunes, with “the collective action of those members that appears to be driving up the value of GameStop’s stock.” As members buy more stock, originally priced at under $5 just a few weeks ago, the stock price continues to increase, with “no signs of that collective action stopping anytime soon.”
Some members of the thread are encouraging others not to sell, with posts such as “GME will stay going until WE sell. Do not f—ing sell boys, $1,000 was the original target but nothing is stopping this from getting to $5,000 but us.”
Late on Tuesday, Tesla Inc. CEO Elon Musk tweeted a link to the Reddit thread, which only further fueled the stock’s meteoric rally.
While such demonstrations of collective power are fascinating to witness, there are concerns regarding the long-term prospects of such a valuation. Speaking with Business Insider, Wedbush Securities’ managing director Michael Pachter described GameStop’s stock value as “just a cult phenomenon,” and that “they don’t currently have the earnings power to support a price this high.”
In addition, “famed fund manager Michael Burry warned that the manic rally has gotten out of hand, calling the stock’s rise ‘unnatural, insane, and dangerous,’” according to Yahoo! Finance.
The Guardian reported that the aggressive promotion of GameStop on the forum has been pitched “as a battle of regular people versus hedge funds and big Wall Street firms,” aiming to punish various investors and firms who have focused on shorting the stock.