Last year, meme stocks — stocks with a passionate online following — took over retail trading, led by the historic rise of GameStop (NYSE:GME). Soon after, other stocks like AMC (NYSE:AMC) and BlackBerry (NYSE:BB) followed. How did this happen?
Retail traders took it upon themselves to congregate on social media platforms, such as Reddit’s r/WallStreetBets, Twitter (NYSE:TWTR) and Stocktwits. On these platforms, retail investors would discuss which stocks to buy in tandem. After the rise of multiple stocks, retail traders grew more confident in their ability to influence stock prices.
So, what exactly are meme stocks?
What Are Meme Stocks?
Meme stocks can be defined as stocks that have gained a passionate online following. These stocks are often targeted by retail traders for their high short interest, in hopes of a short squeeze. In addition, the meme-stock crowd has developed their own slang as well. “Diamond hands” refers to someone who isn’t afraid to own a stock, even if it drops lower. Meanwhile, “tendies” refers to profits on a trade. “To the moon” means that someone expects a stock to rise.
GameStop’s rise last year was kicked off by a YouTube user named Roaring Kitty. At the time, GameStop was trading around $5, and Roaring Kitty posted a video explaining why GME stock could rocket higher to $50. The video details GameStop’s high short interest, primarily due to hedge funds shorting the stock. By January of last year, GameStop had squeezed to as high as $483, with hedge funds like Melvin Capital taking heavy losses. Thus, the meme-stock frenzy began.
What Are the Next Meme Stocks?
Now that traders know that they can influence stock prices through social media, many are looking for the next big meme stock. While GameStop and AMC are the most popular meme stocks, other stocks like Koss (NASDAQ:KOSS) and Newegg Commerce (NASDAQ:NEGG) are gaining notoriety as well.
A popular website for tracking the next potential high-flying meme stock is ApeWisdom. The website tracks mentions across the r/WallStreetBets community during the past 24 hours and ranks them numerically. Currently, GameStop holds the number one spot, with AMC coming in third.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
