GameStop (GME) and AMC (AMC) shares have skyrocketed once again, with both stocks more than doubling in value over the past week. The surge in these meme stocks has been attributed to the reemergence of Keith Gill, also known as "Roaring Kitty," whose bullish stance on GameStop ignited the 2021 meme stock rally. However, Wall Street strategists caution that this recent burst of enthusiasm is unlikely to match the intensity of the 2021 mania.
In a research note on Tuesday, Marco Iachini, senior vice president at Vanda Research, wrote that while further retail interest could flow into these stocks over the next few trading sessions, the chances of a repeat of the 2021 frenzy are "low." Iachini explained that "Quant/hedge funds are much better equipped to handle these situations nowadays," and that they may participate in the squeeze alongside retail investors but exit their trades ahead of them.
Despite the significant gains in both stocks, which have been followed by trading halts and a paring of gains on Tuesday, the current market action remains a far cry from the level of retail inflows seen in 2021. According to VandaTrack data, GameStop saw net inflows of $15.8 million on Monday, while AMC attracted $37.5 million. In comparison, during the peak of the January 2021 meme stock rally, daily inflows reached $87.5 million and $170 million for GameStop and AMC, respectively.
Nicholas Colas, co-founder at DataTrek, highlighted the differences between the current meme stock moment and the 2021 frenzy in a note to clients on Tuesday. "Retail traders are not just sitting at home with little to do aside from trade stocks," Colas wrote. "The Federal government has not just air dropped trillions of stimulus money. Yes, we're sure that we will hear more about meme stocks in the weeks to come, but not with the same fervor as 3 years ago."
The resurgence of interest in meme stocks has raised concerns about the potential for a bubble-like atmosphere to proliferate through the market. However, Colas argues that the current level of activity does not indicate widespread excess. "Every bull market has its share of excess, but this only becomes dangerous when it becomes widespread. Examples would be dot com stocks in the late 1990s and speculative small caps in 2021," Colas wrote. "The flurry of activity around GME today is normal, even if it calls back to prior market silliness."
John Higgins, chief markets economist at Capital Economics, echoed this sentiment, stating that the current situation does not resemble prior bubbles. "Even if interest in 'meme' stocks rebounds following a renewed surge in GameStop's share price, some of the telltale signs that a bubble in the broader stock market may be entering its final stages - such as excessive leverage - are absent," Higgins wrote.
Keith Gill, the man behind the "Roaring Kitty" persona, rose to fame through his social media presence on YouTube and Reddit, where he laid out a case for buying shares of GameStop as early as 2019. His online following grew exponentially during the COVID-19 pandemic, as more amateur traders were drawn to his investment thesis. Gill's bet on GameStop paid off handsomely, with the stock soaring from roughly $1 at the start of 2020 to a peak of more than $80 in late January 2021.
The 2021 meme stock frenzy was characterized by a "short squeeze" strategy, in which amateur traders drove up the prices of heavily shorted stocks like GameStop, forcing hedge funds with short positions to incur substantial losses. This strategy resulted in billions of dollars in losses for hedge fund Melvin Capital, which required rescue funding from other major hedge funds to stay afloat.
