GameStop Stocks Surge Thanks To Reddit-Fueled Frenzy

Video game retailer GameStop continued its meteoric and unexpected stock surge on Wednesday morning, with the price of shares surging another 130 percent in pre-market trading, as reported by Reuters. The jump is part of a two-week trend fueled by amateur investors and has seen the company's stock rise by 700 percent.

GameStop, and BlackBerry and Nokia to a lesser degree, has seen the benefits of investors who forego the traditional investment advisers in favor of sources such as the Reddit subreddit r/wallstreetbets and Facebook groups including "Robin Hood's Stock Market Watchlist." The unorthodox methods have grown in popularity in recent years and made a major splash on Wall Street this week.

On Tuesday, trading was halted on GameStop five times due to its volatility, following it being halted nine times on Monday. Deutsche Bank strategist Jim Reid described the phenomenon as "fascinating."

"These are not normal times and while the (Reddit [r/wallstreetbets]) thing is fascinating to watch, I can't help but think that this is unlikely to end well for someone," he told Reuters.

Employees work inside of a GameStop
Getty Images | Ethan Miller

The stock received another boost when Tesla CEO Elon Musk tweeted about its rise, sharing a link to the r/wallstreetbets subreddit while describing the situation as "Gamestonk!!," as reported by MarketWatch. "Stonks" is a popular meme usually used to mock those who overestimate their ability in stock markets and investing, which ironically has yet to be the case with GameStop. Musk has a history of influencing the market with his tweets, including unintentionally boosting the price of an unrelated stock after recommending the Signal messaging service earlier in January and moving shares in Etsy higher after tweeting about a present he bought for his dog from the site.

Musk's tweet helped push GameStop's capitalization to $10.3 billion on Tuesday, the first time it has been valued at such an amount since 2007. It could reach as much as $15 billion by the end of trading on Wednesday. The company appeared to be in decline, due to most PCs and gaming consoles offering the ability to directly download games, but it's unclear what impact this will have on the retailer's future.

The losers in this surge are GameStop short sellers betting on the company's fall, who have lost $5 billion on a mark-to-market, net-of-financing basis in 2021. On Tuesday alone, investors and hedge funds employing this strategy lost $876 million. While some have been left reeling, FIS' Analytics data shows that investors have added an additional $2.2 billion in bearish bets on GameStop, a remarkable 20 percent of its market capitalization.