Meme stocks, fueled by social media hype, can soar or crash rapidly. While some see potential for explosive gains, others pose a high risk. So, how to navigate this wild ride? Hot companies with strong fundamentals and a clear growth path might be worth a closer look, even if they have meme stock buzz.
On the other hand, companies with shaky finances or no concrete plan for future success are generally best avoided, regardless of online chatter. Ultimately, in-depth research beyond the memes is key to separating potential diamonds from the rough.
Well, that’s the general wisdom most rational investors should follow anyway. At the same time, influential traders like ‘Roaring Kitty’ continue to prove that some speculation may pay handsomely. That contradiction leaves most investors wondering what to do: chase what may be free money or end up another sad story burned by FOMO? Let’s look at some of the most popular meme stocks and identify which of the two scenarios is more likely to occur.
AMC Entertainment (AMC)
Investing in AMC Entertainment (NYSE:AMC) stock is FOMO and nothing else. While that’s arguably true for most meme stocks, it’s especially true for AMC.
I say that because AMC’s spikes in 2024 happen very quickly — over a few days at most — and then reverse course. Thus, once share prices rise, there’s a rapid emergence of fear of missing out. That’s a recipe for trouble and quick losses.
I also think investors should avoid AMC for the same general reasons most analysts advise against it: The company isn’t growing and continues to produce substantial losses. So, it’s fundamentally weak. Furthermore, streaming is here to stay and AMC cannot compete with changing movie consumption tastes. Younger generations haven’t grown up with the same movie-going experiences that existed decades ago. Preferences are shifting toward at-home streaming. That shift ruins the economics of movie theater operators like AMC.
That truth — combined with the short duration of meme price spike opportunities in AMC — makes it one to avoid overall.
GameStop (GME)
GameStop (NYSE:GME) would be an easy stock to avoid if investing were simply an objective game. It isn’t. Various subjective factors are always at play, and social media has fuelled those factors.
So, what I’m trying to say here is simple. While GameStop’s revenues are falling and EPS continues to move deeper into the negative, share prices are likely to rise soon. Blame politics and the polarization of everything through social media if you’re looking for a scapegoat. But no matter how you feel about it, CEO Ryan Cohen’s recent tweets endorsing Trump in 2024 have the potential to spike share share prices.
Given his previous positions regarding CEOs and political postings, are those tweets hypocritical? Absolutely.
Have we also seen how powerful such tweets can be in moving speculative investments higher in the recent past? Also, ‘yes’. That’s the nature of our world today, and it’s a powerful reason to believe that GameStop could pop again as it aligns — or is aligned by its CEO — with the right.
SoundHound AI (SOUN)
If my hunch is right, SoundHound AI (NASDAQ:SOUN) will probably produce free money for investors in the coming weeks. It all relates to the relationship between Taiwan Semiconductor Manufacturing (NYSE:TSM), Nvidia (NASDAQ:NVDA) and SoundHound AI.
The reason for leaving SoundHound AI will move higher relates to the second quarter performance of Taiwan Semiconductor Manufacturing. TSMC beat revenue and profit expectations upon releasing its Q2 earnings recently. That’s a strong signal to the markets that the AI hardware boom remains in full swing. That’s a strong signal that Nvidia will continue to be strong overall – and positive news in light of recent growing concern – as it is one of TSMC’s most important customers.
Nvidia is an investor in SoundHound AI. We learned much more about that relationship earlier this year with the release of Nvidia’s 13F filing. It indicated that voice recognition software has a huge potential growth market for found-use applications, from restaurant ordering to automotive. The point here is that investors will be looking at SoundHound again, as Nvidia should rebound on the positive news surrounding TSMC’s Q2 earnings.
Rivian Automotive (RIVN)
Rivian Automotive (NASDAQ:RIVN) is a meme stock to avoid, in my opinion. There are simply too many issues with the company to consider it a glass-half-full scenario.
Yes, consumer demand for the R1SUVuv continues to strengthen; however, investors must look beyond that and consider the bigger picture. Rivian reiterated 2024 production guidance in its June delivery announcement. Investors should continue to expect substantial losses and profoundly negative per-share earnings from Rivian in 2024 with sub-9% growth. There is no positive surprise on the horizon right now.
Rivian’s net losses grew in Q1, approaching $1.5 billion. Those are not encouraging figures for investors. Remember, Rivian IPO’d at $130 back in 2021. Shares now sell for $17. Shares have declined more than 21% year-to-date, even with a recent turnaround. Rivian is too risky, and it’s better to err on caution.
Beyond Meat (BYND)
Beyond Meat (NASDAQ: BYND) will certainly advance as the stock and company prospects worsen. The most recent news from the company is that it is in talks with bondholders about balance sheet restructuring.
Bonds are debt the company owes to various investor groups, and the restructuring talks indicate that Beyond Meat is in deep trouble. With this latest move, Beyond Meat’s management is clearly signaling increasing bankruptcy risk. The company’s cash burn issues and deep net losses are well known. The restructuring talks will only heighten fears that Beyond Meat is incapable of repaying its debts.
The simple fact is that Beyond Meat products have not been met with the demand anticipated by the company and investors earlier. Revenues fell 18% in the first quarter, exemplifying that truth. The news will create a short-selling opportunity, but there is no reason to expect share prices to rise reasonably soon.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) is at risk of bankruptcy, but if it can avoid that, I can see reasons to invest in the stock now.
Let me just substantiate my first point about bankruptcy risk. ChargePoint Holdings has an Altman Z-Score of -1.92. That number indicates a possibility of bankruptcy in the next two years. That score isn’t the only red flag for the company either. If ChargePoint Holdings can avoid bankruptcy, there are some real positives ahead.
Revenues are expected to grow by nearly 27% in 2025, and losses should narrow substantially during the same timeframe. That expectation is prompted by rate cut expectations and a resurgent EV sector next year.
So, investing in CHPT shares might be free money right now. Top-line growth is expected to be even stronger in 2026, and ChargePoint is expected to begin producing per-share earnings at the same time. Those who jump in now and hold on might be setting themselves up for a good amount of free money.
Ginkgo Bioworks (DNA)
Ginkgo Bioworks (NYSE:DNA) sounds like a deeply interesting company and potential investment. The company continues to promise to enable customers to program cells as easily as we program computers. It is building a platform for biotech partners to realize that dream, but the ambitious goal is fraught with real-world constraints.
Synthetic biology is a complex field that tends to produce losses, as does the wider biotech sector. The company’s problem is twofold. First, revenues that highly depend on sales of its synthetic biology platform continue to fall. Second, the company is nowhere near financial stability.
The company announced that it expects EBITDA breakeven by late 20rt. That’s far away in most investors’ eyes, never mind that EBITDA doesn’t consider taxes, depreciation and amortization. The company is reducing labor costs by 25% at least. How is it expected to produce meaningful advancements in its platform? The answer is they’re unlike, but that’s the nature of balancing share prices and jobs at publicly listed firms.
On the date of publication, Alex Sirois did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.