The past month has been crazy for GameStop Corp. (GME). Its share price has skyrocketed more than 1600 percent so far in 2021, leaving investors and market analysts in shock. The stock market has never seen anything like this before, with the market value of GameStop climbing to nearly $23 billion from just $2 billion within a couple of weeks.
Most industry experts believe that the latest stock rally has been caused by Reddit’s group WallStreetBets, which includes a growing community of small investors who have been buying GME stock, creating a short squeeze that sent the stock to an all-time high.
The bullish thesis is that the investment firm led by Ryan Cohen acquired a significant stake in the gaming merchandise retailer last summer and vowed to accelerate GameStop’s digital transformation. Million of small investors on WallStreetBets have been betting that the company can do exceptionally well following its digital transformation.
On the other hand, some short-selling hedge funds have suffered heavy losses from the latest stock rally, as they were previously betting the stock to drop. However, contrary to their expectations, the stock kept climbing and those hedge funds had to buy back the borrowed stock at a higher price, further pushing the share price up as a result of a massive short-squeeze.
Some funds were left with no choice but to sell their best-performing stocks such as Apple (AAPL), which fell for two straight days despite reporting strong quarterly results for the first quarter. Many Apple shareholders blamed GameStop’s unusual trading activity for the drop in AAPL share price.
Nevertheless, nobody exactly knows how this crazy ride will end. GameStop stock skyrocketed 67.87 to $325 on Friday on a huge volume of over 50 million shares.
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