GameStop is once again the talk of Wall Street as the video-game retailer turned non-fungible token (NFT) hopeful jumps on Reddit rumors. GME stock is up 12% today as it trends as the most talked about meme stock on the r/WallStreetBets subreddit.
There isn’t one particular piece of news pushing GameStop up today. Rather, there are a number of developments helping the former video game giant. GME stock soared more than 25% earlier in the day as rumors of a potential short squeeze floated across social media. GameStop currently has a short interest of about 26.4%, its highest level in more than a year.
Short squeezes occur when many investors hold a short position on a given stock but the stock jumps in price. Investors shorting the company will typically abandon their investments in the face of theoretically unlimited losses.
In early 2021, a number of Redditors on the forum r/WallStreetBets noticed high short interest in GME stock and other apparent “meme stocks.” The retail investors then organized a sort of collective rally for the stock, sending shares as high as $483 in January 2021.
GME Stock Climbs as Company Still Faces Headwinds
Today’s jump is largely disconnected from any element of GameStop’s business. The company did recently launch a digital wallet for NFTs and cryptocurrencies. However, many doubt its ability to gain a foothold in the market.
Wedbush analyst Michael Pachter recently commented on Gamestop’s uphill battle in the face of recent gains:
“Console and mobile walled gardens are controlled by much larger technology companies that will be unwilling to let a third party such as GameStop capture a meaningful share of consumer spending on-platform […] These headwinds, combined with high levels of spending related to its NFT efforts and other cost centers, may trigger significant cash burn for much of the next year or longer, forcing the company to issuemore equity.”
That said, GME stock investors should still be pleased with the company’s performance this week. GameStop is on track for a second straight day of gains, joining the likes of meme companion AMC (NYSE:AMC). Whether or not it can hold onto these new gains remains to be seen.
On the date of publication, Shrey Dua 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.
