GameStop is a corporation which makes money out of selling video games in various stores across the United States recently, so its stock prices increase as much as 1700%.
Many fans believed desktop price is significantly undervalued by investors who had invested billions on its falling stock prices as a particular post went viral online. Many small investors started purchasing the retailer stock; in no time, the stock price rapidly started rising, forcing many investors to spend billions of money to cover up their losses.
The GameStop tale has stunned many large firms of investment on Wall Street and has left the community of trade confused around the world. Over the past weeks, there has been chattering on various social media platforms about the GameStop Corporation, a US based video game, and gaming merchandise retailer.
The American financial market has suffered a lot because of its soaring stock prices. The drama has even drawn Congress members’ attention; some of them are even calling for a legal investigation into the regulators, companies, and investors involved.
What happened to GameStop?
Like many other retail stores in the United States, GameStop Corporation had also faced the same loss and pressure during the pandemic when people were forced to buy goods from online stores instead of in stores. Many Wall Street investors started betting and investing in high amounts against the company, believing that its business model will soon get doomed.
But not everyone agreed with these facts. Months ago, through the Reddit website, few members of a popular stock market group started encouraging many investors to invest in the company by stating that big investors have gotten the wrong idea and that cooperation games were undervalued.
After this statement, many investors were bought in. In the last week of January, a conflict went viral on various social media platforms, making money investors buy the company’s share. This caused a rapid rise in the stock price and caused distress for many investors who had invested against it.
In January 2021, the game stop share has increased to almost 1800 % and about 8000 % in the last 12 months. On 27 January 2021, Dow Jones Index fell over 2%, the GameStop shares increased nearly to 135%, which means an increase of almost $200.
In contrast, one single share of GameStop was worth $3 in the year 2020. But today, one single share of GameStop is worth $340. The market capitalization of this company has rapidly increased to $ 24 billion.
What caused the GameStop surge?
Investors have no clear statement regarding the rapid increase in the GameStop shares is caused by any solid business planning or reasons. However, for the last three or four years, their shares’ price has always decreased and it was pronounced to report their third year of loss.
So, what caused this sudden surge in the GameStop shares? While it is very complicated to figure out at first glance, but with proper research, it is suggested that during the lockdown, there has been a rapid growth in savings among millennial investors and as the US blue-chip stock experienced a sudden rise in their stock prices could have triggered the sudden surge in the GameStop stock prices.
Many small investors have played an important role in pumping up GameStop’s stock value in hopes to revolve against the Wall Street biggies, hedge funds from them who usually gain profit from the loss-making companies like GameStop. This wild and sudden rally on the US financial market has hit both traditional and professional investors of Wall Street as they have undergone loss in the last few trading sessions.
What is Congress saying?
After the financial market racket, which was caused by conducting volatile trading around AMC, GameStop, and similar other stocks, a statement was passed on 28 January 2021 by the Democratic Senator Sherrod Brown of Ohio that they will hold a hearing on the current situation of the financial market.
Brown also stated that “people of Wall Street only care about the rules and regulation when they suffer from heavy losses. Many American workers have known for years that the Wall Street system is completely broken and now they need to pay the price,” he also said, “it is now time for Security and Exchange Commission and Congress to make finance work for everyone, not just for Wall Street investors.”
On the same day, Maxine Waters, Chairman of the House Financial Services Committee, stated that she had planned to organize a hearing for examining various stock market practices and short selling that have been highlighted through the trading of GameStop and different other stocks.
Waters also stated that “As a very first step for reining all these abusive stock practices, I will organize a hearing for examining all the recent activities around GameStop stock ok and all the other highly impacted stocks with a major focus on gamification, online trading platforms, short selling, and how they created an impact on retail investors and capital markets.”
Small investors’ significant small investments can be traced back to various social media platforms like Reddit, Facebook, and Twitter. Many analyst and traders believe that the discussion held between these micro-groups of investors are the primary reason behind the rapid increase in stock prices.
Reddit is an online chatting platform where various participants can discuss the stock market and trade on r/WallStreetBets. This forum was flooded by memes and calls for revenge against large Wall Street Investors. Many small investors who were part of this 3 million participants group are very likely to be responsible for the rapid increase in GameStop and other such companies.
The more significant crisis in the making
It was noted that about 71 million GameStop shares with are worth $5 million had been currently shorted. These bets have caused many investors heavy losses of nearly $3 million.
The fact that rapid gain in GameStop stock prices has defeated the traditional stock market is quite scary and caused high losses. GameStop shares have been one of the most actively traded shares and stocks in the past few trading sessions, with its buy orders highly overshadowing its sell orders.
Many experts have stated that this bubble will burst after causing significant damage to the traditional investment system and patterns. However, the small investors are not worried about the US financial market and are busy celebrating their victory against Wall Street biggies.
Members of the WallStreetBets forum are still promoting the GameStop shares. They consider it a battle between regular folks (small investors) versus the big firms and hedge funds ( Wall Street Powerhouse).
This war over games top and similar companies have triggered conflicts between big investment firms and small investors. However, it is tough to state when the GameStop saga will come to its end. Many analysts and investors believe that it will be a hard-learned listen for small investors and big firms.
With time the GameStop saga has turned into an international topic that has stood many big investment firms and confused many trading communities worldwide.