GameStop Shares Drop in a Sudden Reversal

On Tuesday, GameStop shares experienced a notable decline, falling as much as 7%. This drop partially reversed the remarkable 21% gains the stock saw the previous day, gains that were triggered by a social media post late Sunday from an account widely believed to be associated with the video game retailer’s most fervent advocate.

The surge on Monday saw GameStop’s shares rise by as much as 75% at its highest point. This dramatic increase was catalyzed by a post from the user known as “Deep F***ing Value” on Reddit’s Superstonk subreddit. The post included a screenshot suggesting that the user holds 5 million GameStop shares worth $175.7 million as of Friday’s closing price, reigniting interest and excitement among the stock’s supporters.

Late Monday, a report by the Wall Street Journal revealed that executives at Morgan Stanley’s E-Trade trading platform had discussed potentially banning the account linked to individual investor Keith Gill. Gill, also known as “Roaring Kitty” on social media, has been a pivotal figure in the meme stock saga, particularly during the height of the frenzy in 2021.

Gill made his return to the social platform X, formerly known as Twitter, for the first time in three years on May 12, 2024. His post, which featured a meme indicating serious gaming, spurred a rapid surge in stock prices overnight.

Despite the excitement surrounding GameStop’s recent performance, market experts have issued cautions. Bill Capuzzi, CEO at Apex Fintech Solutions, criticized the potential ban on Gill’s account, comparing his actions to those of high-profile investors like Warren Buffett. He argued that there was no valid reason for such a ban, suggesting it would reflect poorly on Morgan Stanley.

Monday’s rally followed a similar pattern seen last month when GameStop’s shares skyrocketed 180% over two days after Gill posted on social media. However, analysts have warned that the current meme stock activity lacks the retail investor momentum that characterized the 2021 surge.

Steve Sosnick, chief strategist at Interactive Brokers, advised investors to be wary of chasing the rally. He pointed out that the interests of those controlling influential accounts might not align with the interests of retail investors, hinting at the potential risks of following the hype without careful consideration.

AMC also took advantage of the meme stock frenzy, raising $250 million through the sale of 72.5 million shares last month. AMC’s shares remained relatively stable on Tuesday after an 11% gain on Monday.

In May, GameStop capitalized on the temporary rally by selling 45 million shares, generating approximately $930 million in proceeds. Despite the typical expectation that issuing new shares would dilute value and decrease stock price, GameStop’s shares surged by 25% following the announcement.

Adding to the complexity of Monday’s events, a technical glitch at the New York Stock Exchange affected numerous stocks, including GameStop.