What Are Meme Stocks, and Are They Real Investments?

Search Fintrev

Search our guides, reviews and glossary.

A meme stock is the ordinary, exchange-listed share of a real company whose price has come to depend heavily on online attention. Communities on forums and social media pick the stock, build a story around it, and buy together, often with a goal that has little to do with the company’s earnings. The shares themselves are as real as any other: they trade on the same exchanges, settle the same way and carry the same shareholder rights. What sets meme stocks apart is why the price moves. For long stretches, sentiment, viral posts and the positioning of short sellers can matter more than revenue, profit or cash flow. That makes them real securities that often behave like speculative bets.

What makes a stock a meme stock

No exchange, regulator or index provider assigns the label. A stock becomes a meme stock when enough people online treat it as one: the ticker trends in discussion threads, posts about it multiply, and buying by individual investors starts to dominate how the price behaves.

The discussion usually happens on Reddit, X (formerly Twitter), Facebook, YouTube and similar platforms. Some of it is serious. Meme stock communities have published long research posts on balance sheets, short interest and options activity. Much of it is jokes, slogans and images. Both kinds of content push in the same direction: more attention, more buyers, a higher price.

Several traits show up repeatedly among well-known meme stocks:

• A struggling or unloved company. GameStop, AMC and BlackBerry were legacy businesses facing doubts about their future when the crowd adopted them.
• High short interest. Many targets had a large share of their stock sold short, which created the setup for a squeeze.
• A story people want to join. The narrative often cast retail traders as underdogs taking on hedge funds.
• Extreme volatility. Daily moves of tens of percent were common at the peaks, far outside the range of a typical large company.

None of these traits is required. A stock can be popular online without being heavily shorted, and a heavily shorted stock does not become a meme stock unless a crowd adopts it.

How meme trading works

Online investing communities predate the term: stock-promotion chat rooms and message boards helped drive up some dotcom-era prices in the late 1990s and early 2000s. Today’s meme stock phenomenon grew out of the Reddit forum r/wallstreetbets from 2019 through early 2021, a board set apart from earlier ones by its irreverent, profane tone.

Two conditions in 2020 helped. Many people were at home during COVID-19 lockdowns with time to trade, and zero-commission brokerage apps such as Robinhood made buying a few shares or options contracts cheap and quick from a phone.

The mechanics of a meme rally usually run like this:

1. A ticker gets attention. Someone posts a thesis, a chart or simply a joke about a stock, and it catches on.
2. Buying begins. Community members buy shares and often call options, posting screenshots of their positions to encourage others.
3. Price and attention feed each other. A rising price draws media coverage and new buyers, which pushes the price higher still.
4. Short sellers come under pressure. If many shares are sold short, the rising price forces some short sellers to buy back shares, adding more demand.
5. The rally fades or collapses. When new buying slows, the price can fall as quickly as it rose, and late buyers carry the losses.

Coordination varies. Some communities openly try to rally members behind a single ticker. In many cases, though, the holders are a loose, decentralized group of individuals with their own views and their own reasons for buying. Their independent purchases can still add up to a short squeeze in a heavily shorted stock. Strong positive sentiment, combined with limits on how easily skeptics can short the stock, can keep prices above what fundamentals would justify for longer than a traditional valuation model would predict.

GameStop: the first meme stock

In August 2020, the YouTube personality Roaring Kitty posted a video arguing that shares of GameStop Corp. (GME), a brick-and-mortar video game retailer, could climb from $5 to $50. Roaring Kitty was Keith Gill, who also posted on r/wallstreetbets under a username beginning “DeepF…Value.” His case rested partly on GameStop having one of the highest levels of short interest in the market, much of it held by hedge funds. If the price rose sharply, those funds would have to buy shares to close their positions, pushing the stock higher still.

Investor Ryan Cohen, a former CEO of Chewy.com, had started buying GameStop shares on Aug. 13, 2020, before Gill’s video, and kept buying afterward. An SEC filing at the end of August disclosed a stake of about 9.6%, and a November filing put it at 9.98%. Cohen joined GameStop’s board on Jan. 12, 2021. The stock doubled by the close two days later, about eight times the price at the time of Cohen’s and Gill’s earlier posts.

The squeeze Gill had described arrived in earnest later in January 2021. Amid short covering and panic buying, GME shares shot up to nearly $500. A handful of hedge funds took heavy losses, and GameStop-related losses contributed to some later fund closures, though they were not necessarily the only cause. The episode gave meme stocks a David versus Goliath image: small retail investors winning money from Wall Street professionals.

The 2024 revival

After the 2021 frenzy, GameStop shares drifted lower for years and were around $10 by spring 2024. In mid-May 2024, Gill returned to social media after a long absence. He posted a cryptic image on X that was viewed more than 24 million times, followed by a series of movie-themed video memes. None of the posts recommended a stock or mentioned GameStop, yet trading volume and prices surged.

GameStop closed about 74% higher on May 13, 2024, then rose as much as 98% in early trading the next day before closing roughly 60% higher. Short sellers faced estimated mark-to-market losses of more than $1.3 billion over those two sessions. The rally spread to other meme names: AMC Entertainment jumped 120% in early trading on May 14 and used the moment to raise about $250 million through a share sale.

Observers split on whether the 2024 move was a lasting return of meme trading or a short burst of speculation. Either way, it showed that a few posts from one well-known account, with no stated recommendation, could move billions of dollars of market value in a day.

Other meme stock tickers

WallStreetBets users quickly turned from GameStop to other beaten-down names. The best-known early meme stock tickers include:

• AMC (AMC Entertainment Holdings): a heavily shorted movie theater chain whose business was hit hard by pandemic closures.
• BB (BlackBerry): the former smartphone maker. It was promoted alongside GameStop, though its rally was not clearly tied to unusually heavy short interest.
• BBBY (Bed Bath & Beyond): a home goods retailer that became a meme favorite; the company filed for bankruptcy in 2023.
• KOSS (Koss Corp.): a small headphone maker.
• BBIG (Vinco Ventures): a small company that drew meme-style trading.
• HOOD (Robinhood Markets): the broker whose app enabled much of the meme trading later became a meme stock itself.

Support.com was also swept up, and AMC and BlackBerry both rose by multiples in the early waves, with forum members saying they were in it “for the lulz.” Not every meme stock rewarded its holders, even when a short squeeze briefly lifted the price: the Bed Bath & Beyond bankruptcy shows how far the outcome can diverge from the online story.

The list changes over time. A ticker that dominated forums one year can vanish from discussion the next, so a past appearance on a meme list says nothing about whether online buyers are still active in it.

How companies used the attention

A soaring share price gives a company an option it may not have had before: selling new stock at a high valuation. Several meme companies did exactly that.

Under CEO Adam Aron, AMC ran a series of at-the-market and follow-on offerings in 2021. These raised $596.9 million in gross proceeds in the first quarter and about $1.61 billion for the full year. GameStop followed in 2021, selling 8.5 million new shares at an average of about $200 each for nearly $1.6 billion. In 2022, Bed Bath & Beyond announced plans to sell 12 million shares while promoters were pushing its stock higher, and the price fell steeply after the announcement.

For the company, cash raised at a high price can pay down debt or fund operations. For existing shareholders, the effect is dilution. As a hypothetical example, if a company with 100 million shares outstanding issues 10 million more, a holder who owned 1% now owns about 0.91% (1 ÷ 110 × 100). When the price is driven by sentiment rather than value, a share sale can also signal that management sees the price as an opportunity to sell.

Meme stocks and short selling

Short selling means selling borrowed shares in the hope of buying them back later at a lower price. It’s a bet that the price will fall. In the U.S., the broker generally must borrow the shares, or have reasonable grounds to believe they can be borrowed, before the sale. When a stock becomes hard to borrow, borrowing costs rise and some would-be short sellers can’t open a position at all. Some prominent meme stocks have been hard to borrow, and many have carried high short interest.

Two measures describe short positioning:

• Short interest as a percentage of float: shares sold short ÷ shares available for public trading. A high figure means many shares would need to be bought back if shorts close out.
• Days to cover: shares sold short ÷ average daily trading volume. This estimates how many days of normal trading it would take for all short sellers to buy back their shares. A higher number suggests a crowded exit.

How a short squeeze happens

Short positions sit in margin accounts because they involve borrowed shares. As the price of a shorted stock rises, the short seller’s losses grow. If account equity falls below the maintenance requirement, the broker can issue a margin call for more cash or collateral and close the position if the call isn’t met.

A hypothetical example shows the asymmetry. A trader shorts 100 shares at $20, receiving $2,000. If the price falls to $10, buying back costs $1,000, a $1,000 gain before borrowing fees and interest. If the price rises to $60, buying back costs $6,000, a $4,000 loss. A stock’s price has no ceiling, so a short seller’s potential loss has no fixed limit, while a buyer’s loss is capped at what they paid.

A short squeeze begins when many short sellers have to buy at once, whether because of margin calls or because they choose to cut losses. Their purchases add demand, pushing the price higher, which puts the remaining shorts under more pressure. The cycle can produce the near-vertical price charts seen in GameStop in January 2021.

Call options can add to the effect. When traders buy large numbers of calls, the dealers who sell those options often hedge by buying the underlying stock, and they may need to buy more as the price rises. This is often called a gamma squeeze. It ends the same way a short squeeze does: once the forced buying is finished, nothing structural holds the price up.

Short-squeeze dynamics contributed to GameStop’s rally and were widely cited in AMC’s volatility, though they were not conclusively the main driver of either stock’s broader rise.

A meme stock glossary

Meme stock communities built their own vocabulary, much of it celebrating holding through losses and treating selling as weakness:

• Apes 🦍: members of the meme stock community, often linked to the idea of “dumb apes” banding together against Wall Street.
• BTFD: “buy the f***ing dip,” meaning buy after every short-term price decline.
• Diamond hands 💎🤲: holding a stock through heavy losses in the belief that the price will eventually rise.
• FOMO: fear of missing out, the worry that you’ll regret not joining a rally.
• Hold the line: a rallying cry urging others to keep holding through volatility.
• Paper hands 🧻🤲: an insult for people who sell too quickly.
• Stonks: an ironic misspelling of “stocks,” usually shown as a crude drawing of a bald man in a suit before a rising arrow.
• Tendies 🍗: short for chicken tenders; profits from meme stock trades.
• To the moon 🚀🌙: the belief that a stock will rise extraordinarily high.
• YOLO: “you only live once,” used to justify putting a large amount into a single trade.

Robinhood, outages and trading restrictions

Robinhood became closely tied to meme trading, for better and worse. The app had multiple outages in March 2020 during record market activity, including a failure in its DNS system. In January 2021, during exceptional trading volume in meme stocks, it restricted trading in some of them, a move that angered users and led to class-action lawsuits.

FINRA later ordered Robinhood to pay about $70 million in fines and restitution for a broader set of violations, with roughly $5.21 million of the restitution tied to the outages. A broker’s systems and risk controls can limit what you can do exactly when prices move fastest.

Is there a meme stock ETF?

Not anymore, at least not the best-known one. Roundhill Investments launched an ETF under the ticker MEME in December 2021. It held 25 equally weighted stocks: the 50 most-mentioned companies or tickers on specified platforms over the previous 14 days were ranked by short interest, and 25 were selected. Roundhill closed the fund in December 2023.

Single-stock ETFs have also appeared. These offer leveraged long or inverse exposure to one company’s shares, including some stocks that draw heavy retail attention. Leverage magnifies daily moves in both directions, and on an already volatile stock it can produce large losses quickly.

Are meme stocks real investments?

Yes, in the sense that matters legally: meme stocks are genuine shares of operating companies, typically listed on major exchanges, and buying one makes you a part owner of the business. The open question is whether buying one at a given moment is investing or speculating.

An investment case rests on what the business is worth: its earnings, cash flow, assets, debt and growth prospects, the domain of fundamental analysis. When attention drives a meme stock’s price, the gap between price and any reasonable estimate of value can become very large. Critics compare that kind of trading to a casino game: the appeal is the excitement and the chance of a big win, not the business underneath.

The distinction has practical consequences:

• Timing decides the outcome. Holders who bought early in a meme rally and sold near the top made large gains. Those who bought near the peak often faced steep losses that the company’s results never justified recovering.
• Volatility cuts both ways. A stock that rises 60% in a day can fall that much just as fast, and on a bad day the value at risk of a meme stock position can be a large share of the position.
• Leverage and options raise the stakes. Buying on margin can trigger forced selling, and short-dated call options can expire worthless even if the stock rises, just not fast enough.

Some meme companies have used money raised during rallies to strengthen their balance sheets. That can alter the fundamental picture, and you can check it in company filings with standard stock analysis methods rather than in forum posts.

For anyone who decides to trade a meme stock anyway, a few rules follow from the mechanics above: size the position so that losing all of it would not damage your finances, avoid margin, understand how options decay before buying them, and decide in advance at what point you will sell. A meme position works best as a small, clearly labeled speculation alongside a diversified core, the approach covered in a beginner’s guide to investing.

FAQs

The Bottom Line

Meme stocks matter most to individual traders drawn in by viral rallies and online communities. Their prices can rise and fall by large amounts in a day, and late buyers often carry the losses. Anyone who trades one should keep the position small enough to lose entirely, avoid margin, understand how options decay, and set a selling point before buying.