The frenzy of retail investors, the cyclical nature of the market: Why does the madness of meme stocks repeat itself again and again?

The financial market is once again swept by the craze of "Meme stocks". In mid-July, driven by social media buzz and a sudden influx of retail investors, a group of severely shorted stocks including Opendoor Technologies (OPEN.US), Kohl's (KSS.US), and Krispy Kreme (DNUT.US) suddenly exploded in a frenzy of price increases. These stocks, experiencing dramatic volatility - some of them quickly dropping after surges - did not see any fundamental changes, but rather became the new favorites of social media influencers. Similar to previous waves of meme stocks, the selected targets were struggling companies that were packaged by internet celebrities as "heroes of the people" fighting against Wall Street elites. This scene mirrors the initial meme stock frenzy of 2021 - when, driven by well-known Reddit users, the stock prices of GameStop Corp. Class A (GME.US) and AMC (AMC.US) soared due to a wave of trading frenzy. These meme-driven surges can bring unexpected windfalls of billions of dollars - but for those who are late to the party, it often means heavy losses. Why does the frenzy keep repeating? Meme stocks typically share certain characteristics: they inspire collective imagination among internet users and gain influence from retail investors who promote them on social media. Related posts often include memes or videos integrating elements of popular culture. Buying these stocks is seen as an honor badge or a ticket to join a certain club, with investors encouraging each other to buy chips. Each wave of meme stock frenzy involves well-known consumer brands, such as GameStop Corp. Class A and AMC in 2021, as well as Opendoor, Krispy Kreme, action camera manufacturer GoPro (GPRO.US), and plant-based meat company Beyond Meat (BYND.US) in this current wave. Furthermore, these stocks often have high short interest - meaning professional investors are shorting them - and tend to have lower per-share prices. How is it different from the pandemic period? The market environment in 2025 is fundamentally different from 2021. During the pandemic, investors in isolation held government stimulus checks and shared stock-picking experiences on social platforms. However, the current market faces factors such as high interest rates and uncertain trade policies, which should dampen risk appetite, but the market speculation sector is once again active. The number of stocks involved in this wave may be less than in 2021, but the volatility is more intense and the surges are short-lived. For example, Opendoor surged by 43% on July 21, with a trading volume of 1.9 billion shares, accounting for about 10% of the total US stock trading volume. The options trading volume driving this market soared - with over 3.4 million contracts changing hands that day, exceeding even the single-day peak of GameStop Corp. Class A during the 2021 surge. Companies like Kohl's and Krispy Kreme rose due to a forced short squeeze (when short sellers are forced to buy back stock to cover their positions). However, Krispy Kreme's surge did not last - after surging 39% at the opening on July 23, the closing increase narrowed to 4.6%. What are the risks of meme stocks? These trades are extremely high-risk as buying motivation is almost unrelated to company fundamentals. The dramatic price fluctuations also increase the trading risks, especially for inexperienced investors. GameStop Corp. Class A has dropped over 70% from its peak in January 2021, and AMC has plummeted almost 99% from its high in June 2021. Why do meme stock frenzies keep happening? Unexplained surges in consumer stocks can usually be traced back to forums like Discord, Reddit, or trading chat rooms like StockTwits. The GameStop Corp. Class A frenzy in 2021 originated from bullish posts by the internet-famous trader "Roaring Kitty" Keith Gill. In this July 2025 surge, Eric Jackson, the founder of Toronto hedge fund EMJ Capital, repeatedly posted bullish views on Opendoor on X platform, sparking discussions among retail investors. The stock then made it to the hot trading list on StockTwits and was frequently mentioned on Reddit's WallStreetBets forum. Is it illegal? While the US Securities and Exchange Commission (SEC) cracks down on illegal market manipulation, evidence is required to prove that the actor acted with subjective intent. If someone deliberately manipulates stock prices for profit, their bullish statements may constitute illegal behavior. The ethical controversy surrounding the influence of social media influencers on stock prices continues. Critics point out that meme stock promoters often do not disclose crucial information such as position size, trading timing, and whether they receive promotion fees. Supporters argue that this is not fundamentally different from aggressive investors driving reform or institutions issuing negative reports on companies. Why do these frenzies always fizzle out? For meme stock frenzies to continue, they need to continuously attract new investors to enter and mobilize more speculative capital. This model worked well during the peak of meme stocks in 2021 paired with the pandemic lockdowns, but is now harder to sustain. The surge in AMC in May 2021 lasted only two days before ending. Faraday Future Intelligent Electric, Inc. surged from $0.04 to nearly $4 within a week in 2024, but fell back to penny stock territory in less than two weeks. Recent small-scale frenzies are even more short-lived - in part because Wall Street institutions have developed strategies to quickly identify and respond to such fluctuations, often leading to a rapid downturn in surges. Although the core driving force behind meme stock surges is the emotional release of retail investors against Wall Street, as demonstrated by the outcomes of AMC and GameStop Corp. Class A in 2021, company fundamentals will eventually take the lead, and the party will eventually come to an end.