The conclusion of tax filing season may signal the start of another surge in speculative stock trading, according to investment analysts who monitor individual investor behavior.
Vanda Research, which specializes in tracking self-directed retail investors, reports early indicators of renewed interest in so-called meme stocks – companies whose share prices skyrocket based on social media hype rather than actual business performance.
With investors now less focused on Middle Eastern conflicts, “and this group of people can focus on what to do with their tax refunds, we’re starting to see some early indications of another meme-stock summer,” explained Viraj Patel, who serves as global macro strategist at Vanda.
The most dramatic example occurred Wednesday when Allbirds stock exploded upward by 500% after the former shoe company announced plans to transform into an artificial intelligence computing infrastructure business.
Individual investors showed strong appetite for the concept and the company’s planned rebrand to NewBird AI. Despite losing nearly 36% of value Thursday to close at $10.91 per share, the stock still trades far above its yearly low of just $2.15.
According to Vanda’s calculations, retail investors purchased a record $5.2 million worth of Allbirds shares Wednesday, exceeding even the $5 million in trading volume during the company’s 2021 public debut when its environmentally-conscious footwear drove investor interest.
“We’ve seen this playbook before – retail stepping in aggressively when a ‘non-tech’ company pivots toward AI,” Vanda analysts noted in Thursday research.
Patel emphasized that signs of broader meme stock activity extend beyond single company movements. He highlighted evidence of retail investors aggressively purchasing longtime popular stocks including Tesla, Palantir Technologies, and quantum computing company IonQ.
“These are retail favorites; meme stocks that capture the imagination of the individual trader,” Patel stated.
Social networking company Myseum provided another example Thursday, with shares climbing 150% after announcing its own artificial intelligence pivot.
Earlier this year, Algorhythm Holdings briefly became a favorite among speculative traders. The company, which operated as karaoke machine seller Singing Machine Co just one year prior, saw shares temporarily quadruple to $4 in February based on claims it could increase customer freight volumes by 300% to 400% “without a corresponding increase in operational headcount.”
Meme stock trading became a significant market force during early pandemic months when homebound investors turned to stock trading for entertainment and potential profits. However, most companies caught in speculative trading waves have failed to maintain elevated valuations.
Opendoor Technologies, among last year’s meme stock darlings, currently trades around $5.20 per share – less than half its 52-week peak of $10.87. Beyond Meat, another former meme trading target, has fallen to just 79 cents per share from its yearly high of $7.69.
The appearance of new meme stocks and companies promoting market buzzwords frequently raises concerns about excessive speculation.
This week’s Allbirds volatility reminded some observers of December 2017, when Long Island Iced Tea shares nearly tripled after the company announced a blockchain pivot during bitcoin’s price surge.
The renamed Long Blockchain Corporation eventually sold its beverage operations in 2019 following bitcoin’s decline and receiving delisting warnings from Nasdaq.
Some market participants, however, view current rallies as supported by improving corporate earnings forecasts and ongoing fear of missing gains during the three-year bull market.
“We are going to always see froth around the edges, and all too often they coincide with market rallies,” said Art Hogan, market strategist at B. Riley Wealth. “There’s a cohort of investors who sadly always seem to want to chase the most speculative names in the market.”
