Table of Contents
Meme stocks are stocks that go viral on social media platforms and quickly increase in price. Meme stocks have gotten a lot of attention in recent years, especially since the pandemic in 2020. Back in May, 2021, shares of GameStop, as well as other similarly meme-driven stocks such as AMC, Koss BlackBerry, and Koss Corp., suddenly spiked after a post on the X platform by Keith Gill (known as Roaring Kitty) of a popular gaming meme signifying “things are getting serious” is believed to have reignited the meme stock phenomenon that had boosted GameStop shares more than 1,000%.
At the time, online investors rallied together to create a massive short squeeze that befuddled traditional investors and made headlines across the globe. There has been more recent “meme stock” action as well, but that, largely, was the genesis.
Key Points
• Meme stocks are shares of companies that gain popularity through social media, leading to viral status and rapid price increases.
• These stocks are heavily influenced by retail investors’ sentiments rather than the company’s fundamental value.
• The volatility of meme stocks is high, making them a risky investment choice.
• Trading in meme stocks surged during the pandemic, with platforms like Reddit driving significant price swings.
• Meme stock movements can lead to substantial market impacts, including short squeezes that can negatively impact institutional investors.
What Is a Meme Stock?
Meme stocks are company stocks that have gone viral due to popularity among retail investors on social-media platforms.
In a traditional buy-and-hold strategy, investors seek stocks whose shares appear undervalued relative to the company’s fundamental worth or growth potential. In contrast, prices of meme stocks are closely tied to sentiment and chatter among day traders on the Internet, rather than the value of the underlying business. Meme stocks can be extremely volatile and risky.
Common Meme Stock Terminology
Meme stocks have a specific terminology that those who invest in them use. These are a few of the common terms:
• Apes: These are members of the meme stock community
• Diamond hands: This refers to hanging onto a stock, even if it suffers losses, because the investor thinks the price will go back up.
• Hold the line: This is about standing your ground with meme stocks and holding onto them, despite volatility.
• Tendies: Profits made in meme stock. The word is a play on chicken tenders.
• To the moon: The belief that the stock will rise sky high.
Characteristics of Meme Stocks
It can be difficult to pin down what, exactly, makes a meme stock a meme stock. But generally, there are some similarities. For one, they’re almost always at the center of some intense action and attention on social media. They’re also stocks that are disconnected from the fundamentals, meaning that their share values may not reflect the current strength of their business performance. And they tend to be very volatile, rapidly gaining or losing value.
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Background on Meme Stocks
In the past, before the pandemic, when it came to institutional investors vs. retail ones, the former were thought to hold clout in markets. But in 2021, small investors showed they could be a force to be reckoned with, coordinating trades on Internet platforms like Reddit, X (formerly Twitter), YouTube, or Discord to fuel big price swings.
These investors also helped drive moves in different types of cryptocurrencies as well as SPACs, or special purpose acquisition companies.
In January 2021, Investors on the Reddit forum “r/wallstreetbets” banded together and triggered a short squeeze in GameStop Corp. (GME), a popular short among hedge funds. When an investor or trader is shorting a stock, it means they’re wagering that the price of the shares will fall. A short squeeze refers to rapid price gains in a stock, as traders exit their bearish positions at a loss en masse.
Retail investors succeeded in triggering a short squeeze on GameStop stock, leading to losses for hedge funds, who then turned to trying to monitor social-media forums in order to spot the next meme stock.
However, controversy ensued when some brokerage firms halted trading in some meme stocks, citing an inability to post collateral at clearinghouses. Such moves led to angry retail investors and day traders and congressional hearings that looked into brokerage practices such as payment for order flow.
Role of Social Media and Online Communities
A stock becomes a meme when it goes viral. It may become popular on online platforms like Reddit, X, and YouTube. A meme stock can gain a following in discussion groups in these platforms, and the online communities can fuel price swings in the stock.
Examples of Meme Stocks
The first major meme stock example was GameStop Corp., as mentioned above. Investors on the Reddit forum “r/wallstreetbets” banded together. Those investors triggered a short squeeze, which drove up the price of the stock. In January 2021, GameStop stock went as high as $120.75 at one point, after trading as low as $0.70 in the preceding months.
There was another surge of interest in the stock in May 2024, when Roaring Kitty (a key figure in the original short squeeze) returned to social media after a three year absence.
Other meme stocks have included AMC Entertainment Holdings, Inc., a movie theater chain; Blackberry Limited, the smartphone maker; and Bed, Bath and Beyond, Inc. In 2025, other meme stock trended, including Kohl’s and Krispy Kreme.
Pros and Cons of Trading Meme Stocks
Meme stocks can be difficult to wrap your head around, but for some investors, there may be some things that draw them in – or away.
Benefits of Trading Meme Stocks
A couple of the main benefits of trading meme stocks include the fact that they’ve helped retail investors reassume a bit of power in the markets, and brought in younger investors.
• Rise of Retail Traders: Retail investors have shown they need to be taken more seriously by the rest of the market.
• Younger Investors: Given the hyper-online ways in which meme stocks come about, younger investors have learned more about investing and trading through these social-media fads. Still, it’s unclear whether meme stocks will help engender healthy long-term financial planning habits for beginner investors in their 20s.
• Potential for Returns: Naturally, there’s the chance that investors could get in at the right time and generate big returns on their meme stock investments. Note, however, that the risks of losing your investment are perhaps even more likely.
Risks of Trading Meme Stocks
There are a number of potential drawbacks and risks associated with meme stocks, however.
• Lack of Fundamentals: Meme stocks tend to go viral not because of the performance or potential of the underlying business, but because of the sometimes irrational enthusiasm of retail investors and day traders. That puts meme-stock investors at greater risk of downward share performance, if the fundamentals of the business disappoint when the economy or markets dip.
• High Volatility: Studies have shown that passive, diversified investments tend to outperform active trading over the long term. The volatility of meme stocks means that investors are at greater risk of locking in losses or seeing their portfolios underperform in the near term. Take for instance, when trading was halted on GameStop, investors potentially couldn’t execute sell orders.
• Potential Stock Dilution: In some cases, meme-stock companies have tried to take advantage of higher valuations by issuing new shares. In such examples, it’s important that investors understand stock dilution, which occurs when the number of outstanding shares increases and every shareholder ends up owning a less significant piece.
💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.
How to Trade Meme Stocks
Single-name stocks are also not the only ways investors can get exposure to meme stocks. Options trading in meme stocks tend to be liquid, often allowing investors to buy and sell calls and puts easily.
If an investor doesn’t want to research or follow specific meme stocks, another way to get exposure to the phenomenon is by buying an exchange-traded fund (ETF) that holds companies popular on brokerage platforms.
In addition, here are some precautions that investors can take when trading meme stocks:
1. Diversify Your Portfolio: Rather than just holding meme stocks in their portfolios, investors may benefit from also getting exposure to more broad-based ETFs, blue-chip stocks, or dividend-paying companies. Such stocks tend to post more muted price moves, which may help offset the volatility of meme stocks.
2. Set Stop-Loss Orders: Investors can pre-set orders so that a meme stock automatically gets sold if it hits a certain price. A stop-loss order can be used to lock-in profits, so if the shares rise, or to limit losses, if the stock’s price falls.
Risk Management Strategies for Meme Stocks
Perhaps the most important or worthwhile things an investor can do when trading meme stocks is to do a lot of research and pay significant amounts of attention to what’s going on with their stocks, and do their best to maintain a sense of discipline, and not to let their emotions carry them away.
If you’re trading meme stocks, you’re perhaps already swept up in a bit of hype — do what you can to keep your wits and know when you should exit a position. There’s no easy way to do that, so keep your personal risk tolerances and limits in mind.
The Takeaway
In 2021, during the pandemic, the proliferation of zero-commission brokerage accounts and stay-at-home orders led to an individual-investor surge. That led to the creation and rise of meme stocks, and meme stock trading.
Sometimes, individual traders target companies with high short interest to turn into meme stocks. Certain meme stocks like GameStop and AMC capture news headlines by posting rapid, colossal gains, but once the trading frenzy subsides, many meme stocks also plummet. Investors may want to consider other, less risky investments for their portfolio.
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FAQ
What is a meme stock rally?
A meme stock rally is when a meme stock that became popular through social media skyrockets in price.
What is a meme stock ETF?
Meme stock ETFs are exchange-traded funds based around meme stocks. ETF meme holdings are made up of primarily meme stocks.
What investment strategy should you use for meme stocks?
Investing in meme stocks can be extremely risky. If you do decide to invest in them, you may benefit from also having other assets, such as ETFs or blue-chip stocks, in your portfolio to help diversify it. That may help offset the volatility of meme stocks.
Why are meme stocks considered risky investments?
Meme stocks are generally the focus of emotional swings on social media, are disconnected from their underlying fundamentals, and are extremely volatile. Taken all together, that means they’re fairly high-risk investments.
How do online forums influence meme stock prices?
A stock may become a meme when it goes viral on social media or an online forum. It may become popular on online platforms like Reddit, X, and YouTube, and then a meme stock can gain a following in discussion groups in these platforms. Then, the online communities can fuel price swings in the stock.
Photo credit: iStock/RgStudio
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