Speculators wager on Truth Social ‘meme’ stock in Analysis of effect of Trump and dump

Speculators wager on Truth Social ‘meme’ stock in Analysis of effect of Trump and dump

By Abigail Summerville

(Reuters) – Mohammed Al Shalloudi, a 21-year-old qualified data analyst in the United Arab Emirates who invested in Donald Trump’s social media company, has little in common with the former U.S. president’s political supporters.

Al Shalloudi bought shares of Trump Media and Technology Group (TMTG), but not because he believes in his Truth Social app’s business or because he is a Trump fan. He is part of an army of speculators looking for a quick lucrative deal whose bets on TMTG have made it one of the most overvalued and actively traded U.S. stocks.

Al Shalloudi said he bought at $37 per share and cashed out late last week at $65 per share, achieving a 76% return on his $4,000 investment in just a few days. TMTG stock closed Monday at $48.66 after listing on Nasdaq last week in a deal that valued it at just $10 per share.

“It was obvious. You buy the shares, wait for Trump fans to hear about it and enjoy your profits,” Al Shalloudi said.

Reuters interviews with more than a dozen investors who posted their positions on social media platforms such as Reddit and X found that most were looking to make a quick profit.

They’re betting that Trump supporters’ fascination with the stock detaches TMTG’s stock price from the company’s business fundamentals.

TMTG’s current valuation of around $6.6 billion is equivalent to around 1,600 times the loss-making company’s 2023 revenue of $4.1 million, according to LSEG data.

No other U.S. company of similar market capitalization has such a high valuation multiple, LSEG data shows. This is despite TMTG warning investors in regulatory filings that its operational losses raise “substantial doubts” about its ability to remain in business.

The stock is also among the most actively traded, according to Trade Alert data. While social media posts indicate that some Trump supporters have purchased TMTG stock, much of the trading volume comes from speculators looking for a quick turnaround.

“I invested $10,000 last Tuesday because MAGA is crazy and they’re going to pump up the stocks,” said Sarah, a 21-year-old software developer from Pennsylvania, who asked that her last name not be published . MAGA stands for Trump’s campaign slogan, “Make America Great Again.”

TMTG’s appeal to speculators helps explain the stock’s volatility. The shares have risen five-fold in the past two months and currently value Trump’s majority stake in the company at around $3.8 billion.

An episode of this volatility occurred on Monday, with the stock losing more than a fifth of its value. It remains to be seen whether hedge funds and other Wall Street firms will accept such risks and join in the speculation. Large investment firms will be required within weeks to disclose what, if any, their position in TMTG was at the end of March.

Most rallies in stocks that trade on hype among individual investors — so-called “meme” stocks such as GameStop and AMC Entertainment — fizzled after a few weeks or months. Trump is not allowed to sell or borrow against his stake in TMTG for six months, so the rally must last at least that long if he wants to capitalize on the euphoria by cashing out.

A TMTG spokesperson did not respond to a request for comment on the impact of speculators on the company’s market value.

MOTHER OF ALL MEME STOCKS

James Angel, associate professor of finance at Georgetown’s McDonough School of Business, said it would be risky to predict when TMTG’s valuation will drop to more accurately reflect its business prospects.

“Eventually the fun of meme stocks will fade… But it may take a very long time or a very short time for the market to correct itself,” Angel said.

Julian Klymochko, CEO of Accelerate, an exchange-traded fund manager that has not invested in TMTG, called it the “mother of all meme stocks” and said it was difficult to envisage that it attracts long-term investors.

“I think the investors here are either speculators or amateurs just looking to make a quick buck on very volatile stocks, and there’s really no fundamental basis,” Klymochko said.

(Reporting by Abigail Summerville in New York; additional reporting by Anirban Sen in New York; editing by Greg Roumeliotis and David Gregorio)

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