If you bought GameStop stock last year at any point, you are now a very rich person. Today, GameStop's stock price hit $136.11 USD. This is more than double its closing price last Friday of $65.01, and more than 3000% higher than GameStop's stock price at the same time last year.
It's important to note that this stock price has absolutely no bearing on GameStop's financial performance. As we reported a few weeks ago, GameStop posted some hopeful holiday sales numbers, but still saw sales slide compared to Christmas in 2019. This, combined with continuing losses and store closures, means that GameStop is still in a very dire financial situation that incoming board members will have to work very hard to solve.
What is actually happening to GameStop’s stock is a war between Wall Street and Reddit.
As ArsTechnica notes, Wall Street short sellers saw an opportunity in GameStop stock, noting that it was way overvalued compared to the company's actual performance. This led to many of them shorting the stock in order to make a quick buck when it eventually falls back down to where it likely should be.
However, amateur day trading subreddit WallStreetBets found out about this market trend and decided to weaponize its many thousands of members.
"You control the power," wrote a very enthusiastic post from last week. "GME is not going to the moon, but to the edge of the f***ing observable universe."
With both Wall Street and Redditors all clamoring for the same stock, this has created a "massive short squeeze bubble," pushing GameStop's stock price higher. GameStop’s price is just following the basic economic law of supply and demand: when there’s restricted supply and unrestricted demand, the price goes up and up and up.
Making matters even worse is the desperation of short sellers to get out of their financial obligations. Short selling in very basic terms involves borrowing a stock at one price with the promise of selling it back later. So long as the price of the stock goes down, the short seller gets to pocket the difference. But if the stock price goes up, the short seller is liable to pay up however much that stock increased.
And GameStop’s stock is still going up. As of the time of this writing, GME is at $137.50 with no end in sight.
Source: ArsTechnica, Polygon