The Return of Meme Stock Madness: Should You Steer Clear of GME, AMC and RDDT?

Stock Market

Meme stock madness has returned to Wall Street after a three-year hiatus, with Roaring Kitty (a.k.a. Keith Gill) drawing in massive crowds online with his big bets on GameStop (NYSE:GME) stock.

Though Roaring Kitty has since (reportedly) dumped his GME options, he’s still long on the stock big-time, with a huge stake worth anywhere from $220,000 to $262,000. Given how profoundly volatile GME stock has been, the value of his stake is sure to change by double-digit percentage amounts on any given day.

Although it’s hard to tell what Roaring Kitty’s intentions are this time around, I still think investors should resist the urge to follow him. And I most definitely would not want to bet against him, as GME stock could easily spike overnight on no news.

In the 2024 edition of the meme madness, GME stock has skyrocketed twice already, and it may or may not be the last time it will do so. So, whether or not Mr. Gill’s hands are made of diamonds, investors should be very cautious when approaching such a choppy name if they’re seeking to invest rather than spin the roulette wheel.

GameStop (GME)

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GameStop stock is coming off a sharp plunge after its latest spike above $45 per share, now down around 47% off that second spike. Undoubtedly, it’s not hard to imagine that many speculators are looking for that third spike to hit in the coming weeks or months. Could the third time be the charm? I have no idea, nor does the Roaring Kitty himself.

With the stock pulling back on the day Gill went live on stream, GME stock continues to be a mysterious mover. Many bulls will likely get hurt as the volatility remains off the charts going into the summer. Additionally, many shorts are at serious risk of losing more than just their shirts. It will be interesting to see how the meme frenzy plays out for the rest of the year.

Either way, I’d not look to get in on the mania, even if CEO Ryan Cohen’s cost-cut plans can help the firm turn a corner. At the end of the day, the stock will move based on euphoria rather than the fundamentals.

AMC Entertainment (AMC)

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AMC Entertainment (NYSE:AMC) is the iconic movie theatre chain that’s getting caught up in the meme stock boom once again. Compared to GME, AMC stock has been relatively tame, with the stock pulling back just shy of 30% from that May 2024 peak.

As the company continues chipping away at its debt load while taking steps to return to the growth track in the face of streaming headwinds, AMC stock definitely seems like a more tempting meme stock to back versus the likes of GameStop. Even if you’re a fan of the business and its turnaround trajectory, punching your ticket here could prove nothing more than a gamble, especially if meme traders continue taking their profits.

It’s hard to tell when the meme madness will fully wind down and the May spike will dissipate. Either way, investors should exhibit caution, especially as AMC succumbs to meme stock madness that could easily go either way.

Reddit (RDDT)

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Reddit (NASDAQ:RDDT) is the social platform that’s been really buzzing of late as meme stock investors gather to reveal their plans for stocks like GME and AMC shortly. Whether we’re talking about the r/WallStreetBets or the company’s recent licensing deals with various artificial intelligence (AI) firms, like OpenAI, I view RDDT stock as perhaps the most investable stock on this list.

Though tricky to value, the company has notable tailwinds that could help extend its run. As more investors begin viewing Reddit as a data resource for AI companies, I view the potential for additional multiple expansions. Additionally, Reddit may benefit from infusing AI across various parts of its platform.

In any case, RDDT stock stands out more as a data-centric way to play the AI boom. Any meme stock-driven upside from here is nothing more than a bonus for investors with the discipline to lighten up.

On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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