Gamestop, a once popular retail store that rented and sold video games, has been declining in popularity as more and more video games sell digital copies. One thing that has not been declining recently is Gamestop’s stock GME, as it is actually blowing up. The New York Times reported the stock was up more than 1700% just this month. Let’s take a look at why this is happening.

This first started when Gamestop’s stock was struggling and its worth was as low as $3 a share. Picking up on this, many hedge funds began short selling the company’s shares. Short selling is a strategy used by investors to make a profit when a company’s stock is struggling. Essentially, investors will borrow many shares of stock from the company and then sell it as the price continues to drop. They then buy up many shares of the stock for cheap to make interest.

However, instead of the price dropping, the stock is now increasing, and Redditors who are active on the subreddit r/WallStreetBets immediately took the opportunity to buy a plethora of Gamestop stock for cheap. 

This has caused the stock to explode as it currently sits upwards of $300 as of Jan. 27 when it was only $20 three weeks ago. The Redditors are confident that the stock will continue to rise “to the moon,” as they predict it to go up to $1000 per share by the end of the week. When asked why they would go so deep on GME, they described their thinking as YOLO-ing (you only live once). 

Not only are these people making money, they are also causing hedge funds issues as they are unable to stabilize after shorting Gamestop. One of these hedge funds is Melvin Capital, which has needed to borrow money as they were shorting the stock. 

Additionally, billionaires like Chamath Palihapitiya and Elon Musk have shown their support for GME as they opine on the situation. By simply tweeting, “Gamestonk!!” Musk has used his popularity to spread interest in the stock. Palihapitiya himself also bought in on the stock as he asked his followers which stocks he should invest in. 

After the explosion of GME, investors have been discussing what stocks could be the next Gamestop. Potential companies include AMC, Nokia, and Blackberry, all of which have already increased in stock price as people begin to buy. However, as of Jan. 29, Robinhood, a free broker-dealer, has lifted some restrictions after halting GameStop, AMC Theatres, BlackBerry Limited, Nokia Corporation, and other volatile, trending stocks. They are now involved in a class-action lawsuit due to only allowing people to sell shares of those stocks yesterday. Moreover, the largest stock subreddit, r/WallStreetBets, and its accomplice Discord server were temporarily unavailable yesterday, adding to the frenzy. Currently, the members of r/WallStreetBets have continued with their mantra of not selling. Whatever happens next, this is certainly an unprecedented phenomenon in the finance industry.

Photo courtesy of CB4.COM