The news: The US-based insurtech, which went public via a $3.7 billion SPAC in January, saw its share price surge 86% on Tuesday after Reddit put the stock in their sights, per Bloomberg.
Meme stocks explained: As with video game retailer Gamestop’s shares in January, Reddit forums like r/WallStreetBets continue to create herd mentality among retail investors barrelling through the stock market, as Insider Intelligence expected.
For these retail investors, meme stocks fulfill three functions:
- Punishing short sellers. Clover Health short sellers, who believed the stock was overvalued, were down $438 million in mark-to-market losses. GameStop short sellers lost over $5 billion.
- Perplexing the markets “for the memes”—i.e., it’s just funny. Reddit posts on r/WallStreetBets highlight how members make seemingly irrational investment decisions for the joy of duping financial institutions.
- Pump and dump. The artificially inflated share prices can maximize profit for the lucky few who invest early.