A David and Goliath saga is unfolding in financial markets over the stock price of struggling retail chain GameStop. On Wednesday, Goliath walked away from the battle. Two Goliaths, actually.
A pair of professional investment firms that placed big bets that money-losing video game retailer GameStop's stock will crash have essentially admitted defeat. The victor, for now at least, is a volunteer army of smaller investors who have been rallying on Reddit and elsewhere online to support GameStop's stock and beat back the professionals. GameStop's stock surged as high as $380 Wednesday morning, after sitting below $18 just a few weeks ago.
GameStop's stock has long been the target of investors betting that its stock will fall as it struggles in an industry increasingly going online. The retailer lost $1.6 billion over the last 12 quarters, and its stock fell for six straight years before rebounding in 2020. That pushed investors to sell GameStop's stock short. Essentially, these short sellers borrowed shares of GameStop and sold them in hopes of buying them back later at a lower price and pocketing the difference. At the same time, smaller investors gathering on social media have been exhorting each other to keep pushing the stock higher. The battle has created big losses for major Wall Street players who shorted the stock. As GameStop's stock soared and some of the critics got out of their bets, they had to buy GameStop shares to do so. That can accelerate gains even more, creating a feedback loop. As of Tuesday, the losses had already topped $5 billion in 2021, according to S3 Partners.
Today on AirTalk, we’ll dive deeper into GameStop’s big day on Wall Street on Tuesday, how Reddit and the internet played a role, and what the surge of short-selling driven by internet message boards means for stock trading overall.
With guest host Libby Denkmann