Reddit stocks: what meme stocks are trending?

Reddit has become a hub for social-media driven traders and investors that have proven their ability to move the markets, injecting huge volatility into stocks like GameStop and AMC. But what stocks are grabbing attention on Reddit today?

Stocks (2)

Top Reddit stocks to watch

Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the last 24 hours on October 27, 2021, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.

  1. Tesla
  2. Advanced Micro Devices
  3. Facebook
  4. Digital World Acquisition Corp
  5. Ocugen
  6. Robinhood
  7. GameStop
  8. NVIDIA
  9. Microsoft
  10. Palantir

 

Tesla shares failed to push higher yesterday after soaring on Monday on news that Hertz has ordered 100,000 Model 3s, with reports suggesting the firm will pay full price to make the deal worth around $4.2 billion in total. Tesla has gained over $100 billion in value as a result and is worth just over $1 trillion before markets open today. Yesterday, we saw CEO Elon Musk reignite hopes that its new German plant will be up and running before the end of 2021 by tweeting that Tesla will soon be a German car manufacturer, adding that he believes other German carmakers will rebound strongly. There was also news that Tesla has raised prices in China. Citigroup raised its target price on Tesla to $137 from $117 this morning, demonstrating that some strongly disagree with Tesla’s sky-high valuation with shares currently trading at over $1,000 each. Tesla is currently worth more than the next nine largest carmakers combined, with investors continuing to slap a huge premium on the company thanks to its tech-led approach and its first-mover advantage. The 40 brokers that cover the stock have an average target price of $776.56, showing there are wildly different views on the stock’s valuation.

AMD shares are in play after it published third quarter earnings after the markets closed yesterday, reporting a record quarter thanks to strong demand from the computing and graphics segments and better margins. Demand from businesses also remained strong. Revenue rose 54% year-on-year to $4.31 billion and net income more than doubled to $923 million from $390 million. That was better than the $4.11 billion in revenue and $739.5 million in profit expected by Wall Street. EPS also jumped to $0.75 from $0.32 and came in well ahead of the $0.60 forecast by analysts. AMD said it expects fourth quarter revenue of $4.5 billion, which would be up around 39% from the year before and was better than the $4.25 billion pencilled in by analysts. It said annual revenue should grow by around 65%, up from its previous target of 60%. A number of brokers raised their target price on AMD after the impressive earnings and outlook. Still, the average target price of $127.64 implies there is only 2.8% potential upside from the current share price, which sits at fresh all-time highs before the bell today.

AMD’s results also set a buoyant tone for peer NVIDIA, which is scheduled to publish third quarter earnings next month. The stock also trades at all-time highs before the opening bell today, having rallied this week on news that Facebook is ramping-up spending on its data centres and other technology infrastructure. That is expected to provide a boost to NVIDIA, which is known for its graphics processing units (GPUs) used in data centres and computers.

Facebook shares sank over 4% yesterday to close at their lowest level since May, as the company remains in defensive mode following a slew of negative press in recent weeks ranging from outages to the regulatory pressure building amid the fallout from whistle blower Frances Haugen’s testimonies to politicians in both the US and the UK. Facebook beat earnings expectations in the third quarter when it released results earlier this week but its outlook disappointed as targeting adverts becomes more difficult thanks to changes to Apple’s operating system and cutbacks in ad spending by businesses struggling to cope with the pressure being applied to supply chains. Attention has now turned to tomorrow, when Facebook is expected to unveil a new name as it embarks on its mission to build a metaverse.

Digital World Acquisition Corp (DWAC) shares plunged by almost one-third yesterday, building on the 31% fall experienced on Monday. The stock still trades 493% higher than it did a week ago after unveiling its plans to merge with a company chaired by former US president Donald Trump. The SPAC has agreed to merge with Trump Media & Technology Group, which has a mission to ‘create a rival to the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America.’ At the centre of the plans is a new social network that will be named ‘TRUTH Social’, which is set to be rolled out nationally in the US during the first quarter of 2022. Iceberg Research tweeted on Monday that it was short on DWAC, stating that it only sees risks for investors in the near future now that the initial excitement surrounding the stock has passed. Iceberg Research believes the soaring valuation of the SPAC before the actual deal is completed gives Trump better leverage that he could use at the expense of SPAC investors. Reuters reported yesterday that Trump’s stake in the venture is expected to be shielded even if the company faces a ‘material disruptive event’, which could include any potential plans by Trump to run again for the presidency.

Ocugen shares initially rallied higher yesterday but plunged in later trade to close down over 17% after the World Health Organisation delayed its decision on whether to approve the coronavirus vaccine developed by its partner, Bharat Biotech, asking for more information from the company.

Robinhood shares are expected to head lower today following reports the stock fell below its IPO price in after-hours trading yesterday on the back of a weaker-than-expected set of earnings caused by a slowdown in crypto trading. The trading platform, which has become a favourite among retail traders thanks to its simplicity and pricing, said crypto trading slowed in the third quarter after experiencing record volumes in the second. Crypto revenue was up 860% year-on-year but 78% below the second quarter. Equities trading also slowed and was down 27% from last year. The slowdown has continued into the current quarter. Overall, revenue was up 35% to $365 million, which was way below the $431.4 million forecast by analysts.

GameStop has continued to keep quiet on its new strategy since the board was overhauled earlier this year, but investors have been discussing the firm’s plans after spotting a number of job adverts relating to cryptocurrencies, NFTs and web-based gaming.

Microsoft shares rose in extended trade yesterday after beating expectations in the fourth quarter of its financial year thanks to strong demand for its cloud-computing service. Revenue rose 22% year-on-year to $45.3 billion and net income surged 48% to $20.5 billion. That was much better than the $43.97 billion in revenue and profit of $15.70 billion expected by Wall Street. EPS rose to $2.71 from $1.82 and also smashed the $2.07 forecast. Revenue from Azure was up 48%, which was slightly better than expected and, more importantly, faster than the 45% growth reported by Google’s cloud division yesterday. Demand for the likes of LinkedIn and Teams remained strong, although supply chain problems are still constraining growth for its Xbox gaming division and sales of Surface computers. Microsoft said it is aiming for revenue of around $18.23 billion in the first quarter, which was better than the $17.84 billion pencilled in by analysts.

 

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The Reddit frenzy

Retail investors realised their potential power in early January 2021 when a loosely-coordinated strategy was formed on Reddit’s WallStreetBets chatroom to buy shares and out-of-money call options on stocks that were being targeted by short-sellers to push the price higher. The idea was to create a short-squeeze.

 

What is a short-squeeze?

A short-squeeze does what it says on the tin – it tries to squeeze short-sellers out of their positions. Short-sellers, mostly big institutional investors and hedge funds, bet that the price of a stock will fall but, as retail investors pile in and push the share price higher, they are forced to start buying the stock to try to limit their losses. The buying by the big players only fuels the share price higher.

 

David vs Goliath

The fact many of the stocks being targeted are fundamentally flawed or failing adds increased risk into an already volatile picture. GameStop is an out-of-favour retailer that sells physical video games during a time when games are mostly being bought online, while others like Blackberry are also laggards from the past.

With this in mind, it is unsurprising they were in the crosshairs of short-sellers that look for failing companies to bet against.  

But why are retail investors banding together to buy shares in flawed companies? This disconnect is partly explained by a growing resentment among the smaller players in the market, which disagree with the idea of large institutions profiting from a company’s failure through short-selling practices, creating what has been described as a ‘David vs Goliath’ battle.

It is important to note that not all the most actively-discussed stocks on Reddit are struggling or being targeted by short-sellers. Many of the most mentioned stocks, like Apple, are simply popular among the community.

 

Reddit stocks and volatility

The stark movements in stocks like GameStop has demonstrated the power and influence that social media-driven investors and traders can have on the market, having injected severe volatility into several stocks. Volatility presents opportunities for traders, and it doesn’t get more volatile than Reddit stocks right now – even during a pandemic.

For example, we saw GameStop - the first heavily-shorted stock to be targeted by social media-driven investors - go from below $19 at the start of 2021 to a new record high of over $347 by January 27, and the share price has remained highly volatile ever since.

 

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