Meme-stock revival tests investors as social media and AI amplify volatility

Retail interest in so-called meme stocks has surged again, driven by social media chatter, algorithmic tools and renewed attention to a handful of highly visible names that can swing hundreds of percentage points in days.

The trend is prompting some individual investors to book large gains and others to suffer heavy losses as prices move on sentiment rather than traditional measures of corporate performance. Melissa Howard, 36, said she opened an eToro account and invested £6,000 in GameStop last September after a friend recommended the name. "There was one day that my holding went up to £11,500 within a couple of hours. It's a bit of a bonkers investment," she said, adding that she preferred the volatility to holding cash with negligible returns.

Meme stocks are characterised by rapid rallies and equally swift declines, often fueled by online communities rallying to buy shares and squeeze investors who have bet against the stocks by shorting them. The archetypal example is GameStop, whose shares jumped from about $4.42 on Jan. 8, 2021, to a trading high of $483 on Jan. 28, 2021, before tumbling 81% a week later. Even so, the five-year performance from that low point would have turned a £1,000 stake into roughly £19,000, supporters note.

Alongside GameStop, other names that became emblematic of the phenomenon include AMC Entertainment, BlackBerry and Bed Bath & Beyond. AMC's shares leapt as much as 300% in January 2021, while Bed Bath & Beyond ultimately declared bankruptcy in 2023. Some episodic rallies have touched obscure or distressed names: Blockbuster, a defunct video-rental chain, briefly rose more than 1,000% in a couple of days in 2021 despite having no operating assets.

The renewed surge this year has included a mix of legacy meme names and more established technology firms. Doughnut-maker Krispy Kreme posted a one-day gain of 39% in July, while camera maker GoPro surged about 80% on another single day. At the same time, momentum stocks with clearer business stories have drawn interest. Palantir Technologies, a data analytics company, has seen its share price rise sharply amid the artificial intelligence boom and was up about 515% over the past year, according to market trackers.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the convergence of social media and markets that emerged during the COVID-19 lockdowns persists in bursts. "Armies of retail investors realised they have the power to influence markets, and this herd-like behaviour has been continuing in spurts since," she said.

Industry figures and retail traders point to new tools as a factor in the comeback. Ben Kumar of wealth manager 7IM said artificial intelligence has made it easier to identify trending tickers. "During Covid, people had time to trawl through Reddit forums. Now, with AI scraping the web, you don't need to spend the time; just type in 'most talked about stocks on Reddit' and it tells you," he said.

Some investors take a middle path between pure meme speculation and traditional stock-picking. Alex Sergent, 41, said he began investing in March with about £100 allocations to companies such as Nvidia, ASML and AMD and later added Robinhood, Palantir and NeuroOne Medical Technologies as his confidence grew. He said his portfolio is up about 72% since he started, driven by heavy exposure to technology names he believes are central to near-term change.

Other retail traders who mix meme bets with mainstream names report mixed results. Calum Wright, 36, said he doubled his money in GameStop but suffered steep losses in Fastly, whose shares fell from $75 to $5. Wright said he now combines meme positions with holdings in large, established technology companies and traditional energy names. "I only have about a quarter of my portfolio in meme stocks, but I do believe that these volatile companies will deliver the majority of my gains," he said.

Advisers caution that the strategy carries substantial risk. Ben Kumar said meme-stock investing is an "extremely high-risk strategy" and that many who chase viral names are effectively trading rather than investing. Trading and timing the market is difficult even for professionals, and many retail participants have been burned by late entries or rapid reversals.

For individuals who prefer a less speculative approach, advisers recommend focusing on fundamentals: profits, revenue growth, competitive advantage and valuation metrics. Streeter suggested thinking in terms of a minimum five-year horizon and warned against succumbing to FOMO, or the fear of missing out. She recommended diversified exposure through index funds tracking broad benchmarks such as the Nasdaq or S&P 500 as a way to capture growth in hot sectors while spreading risk.

Professional money managers have also tried to capitalise on the meme wave with structured products. One U.S. investment firm launched a meme-stock exchange-traded fund that tracked the most popular names, but it closed after less than two years, having lost about 47%.

Analysts note another risk: when a stock's price disconnects from the underlying business, valuations can reach levels that imply steep future profit growth. Palantir, despite booming revenues and government contracts, trades at a forward price-to-earnings ratio well above the broader market — a valuation gap that can magnify downside if growth disappoints.

Regulators and platform operators have also been drawn into debates about the role of retail trading, leverage and disclosure. The January 2021 episode prompted congressional hearings and closer scrutiny of brokerage risk controls, short-selling mechanics and the amplification effects of social media.

As the current wave unfolds, market observers say the defining feature remains sentiment-driven flows and the speed with which narratives can travel. "Firms see big spikes in value, but nostalgia alone can't sustain the frenzy," Streeter said.

Investors who choose to participate should be prepared for rapid price swings, maintain strict risk limits and consider whether their time horizon and financial situation are compatible with high-risk trading. Financial professionals say only money that can be afforded to lose should be directed to speculative trades, and that a diversified, long-term approach remains the prudent route for retirement and core savings accounts.