GameStop stock surges over 70%—but investors should still be wary of 'meme stocks'

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On Monday, Keith Gill, known online as "Roaring Kitty," posted a picture on X — marking the first time he's engaged with the social media platform in about three years. For most people, a return to social media wouldn't be remarkable. But Gill isn't most people. Between 2020 and 2021, he became one of the key internet personas who encouraged an army of day traders to heavily invest in GameStop, kicking off the "meme stock" frenzy. And in 2024, it appears that meme stocks are rallying again. On Monday, GameStop's share price soared by around 70% throughout the day and trading was paused multiple times due to volatility. On top of that, short sellers lost $1 billion due to GameStop's sudden price rise, according to data from S3 Partner. Short sellers are individual investors or hedge funds who believe a certain stock's price will decline. They borrow shares of that stock, sell them, then buy them back when the share price falls and earn a profit from the difference. However, a lot can go wrong with this strategy. If the stock price doesn't fall the way the short sellers anticipated, they can lose money, as happened with GameStop. Investors should also be wary of chasing meme stocks with the expectation of earning a profit. Here's why.