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Meme stocks are making a resurgence as the broader stock market ends the first quarter on a strong note.
Though the meme stock frenzy hasn't quite reached the same intensity as it did in 2021, when GameStop (GME) and AMC (AMC) stocks catapulted to new heights, the meme phenomenon has continued in a concentrated handful of standouts.
In recent trading, for example, there’s been an uptick in interest in GameStop (GME) sparked in part by new additions to the market via IPO, such as Reddit (RDDT) and Trump Media & Technology Group Corp. (DJT).
Reddit stock soared over 90% to more than $65 a share in its first three days of trading, well above its IPO price of $34 a share. Shares of the social network platform have continued to experience volatility, however, falling to around $49 as of Thursday's close.
And after initially rising by as much as 50% on its first day of trading, Trump Media also saw a decrease in value later in the week, as the stock closed Thursday's session around $62 per share.
"It's been momentum all along since November, but the leading momentum stocks have generally been stocks that have been delivering the goods," Interactive Brokers chief strategist Steve Sosnick said on Yahoo Finance Live (video above) about the broader market rally. "We're starting to see people chase stocks just simply because they're going up, not because of any fundamental reason. That, to me, indicates froth."
Annex Wealth Management's Brian Jacobsen told Yahoo Finance Live that investor interest in meme stocks could be tied directly to FOMO mentality, or a fear of missing out.
“They’re trying to find the next hot thing, and they’re just beginning to chase it and pile into it,” Jacobsen said. “That obviously can work well, but it can also then end in tears, especially if you don’t get into those names early enough.”
3 hallmarks of meme stocks
But what is a meme stock, exactly?
Sosnick explained that there are three main criteria for evaluating if a stock belongs to the category.
The first indicator of a meme stock is a "quasi-religious fervor," according to Sosnick.
"It's one thing to be enthusiastic about a stock, it's another thing to just be so hyped up about it," Sosnick said. "Think about how the real apes were in AMC, the real devotees in GameStop early on. Certainly, one can say that about the former president's base, who I think helped getting DJT's stock moving."
The second criterion is a disregard for fundamentals. Traditionally, investors look for opportunities that offer a financial return over a long-term time horizon, especially one that can beat the market's performance over that same time period.