On 15 July, an obscure Hong Kong-based company known as AMTD Digital finalised its IPO on the NYSE.
With roughly a US$1 billion market cap, and a fairly niche investment banking business model, AMTD wasn’t exactly turning heads. By all accounts, it seemed just like any other newly listed small-cap stock.
But for reasons unknown, this stock quickly turned into the latest fad…
From their IPO offer price of US$7.80 per share, AMTD stock spiked all the way up to US$2,589 per share on 2 August. That’s a 33,092% gain in just 18 days!
At this peak, AMTD carried over a US$400 billion market cap, making it a top 20 listed company across the entire US for a brief moment.
They were bigger than JPMorgan, bigger than ExxonMobil, even bigger than Walmart.
And all this ‘success’ was on the back of a business that was making just US$25 million in revenues…
At face value, this seems like a glaring pump-and-dump scam. Most investors would probably expect this kind of activity from a crypto coin, not some regulated company. But the sheer scale of this ‘meme stock’ fiasco makes it hard to make any definitive conclusions.
The only thing we can say for certain is that even regulation can’t stop all outliers.
Artificial gains
Now, if you’re curious as to how this kind of oddity can even happen, then let me explain.
First and foremost, the biggest factor in AMTD’s surge is the limited number of shares actually available for trading. According to the IPO, the stock has 185 million shares in total.
But, of those 185 million shares, only 19 million are actually being traded. This makes the liquidity of the stock a lot tighter than it seems.
So when interest in AMTD shares began to escalate, fuelled by speculation from some online investment communities, the supply of stock simply couldn’t keep up. This imbalance then quickly turned into the price frenzy that catapulted the stock up the S&P 500.
In our post-GameStop investing world, you can imagine just how easily this can get out of hand.
Retail punters ride the wave to ridiculous heights and refuse to cash out.
Of course, this was never going to be sustainable. Currently, AMTD is down just shy of 70% from that peak on Tuesday. The share price is sitting at US$800 at time of writing, which is still insane for what it’s worth — just a little less insane than it previously was.
How the NYSE or SEC plan to address this, no one knows.
Perhaps they just let it all play out, like they have with GameStop.
But for you and me, watching on as baffled spectators, it really does beg some questions. The most important of which is the power of collective action from retail investors.
A wild new world of markets
To really understand why meme stocks matter, I think you need to take them more seriously than most do.
These aren’t one-off events anymore; they’re emerging as a genuine staple of market dynamics. Young investors in particular have really gravitated towards this democratised version of investing.
Here is a quote from a study on the infamous ‘WallStreetBets’ Reddit group, for example:
‘The influence of retail investors in equity markets is rapidly growing, and now accounts for almost as much volume as hedge and mutual funds combined.
‘This rise has been mainly driven by the emergence of commission-free trading platforms that offer the possibility to trade fractions of shares, so that users can start trading even with very small amounts.
‘Moreover, these platforms allow investors to use leverage, by buying and selling options and accessing to cheap margin loans from brokerages, in a gamified user experience.
‘This “democratization of trading and investing” is unlikely to disappear any time soon, so other financial collective actions might be coordinated in the future, possibly through different social media channels.’
Whether it was a joke at first or not, this growing community of investors is learning firsthand what sort of power it has. The kind of influence that has ensured that a company like GameStop has traded at 10 times the value it did prior to its meme status.
No one knows if AMTD will do the same, but I’m sure some of the people invested in it will hope it does. And that alone is probably all they need to keep some sort of interest, at the very least.
What this all means for everyday investors is hard to say.
But meme stocks, love them or hate them, are just another factor to consider in these wild markets of ours…
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
