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Elon Musk’s 1-word tweet pumped $5bn into this stock

·3-min read
SpaceX owner and Tesla CEO Elon Musk (R) gestures as he arrives on the red carpet for the Axel Springer Awards ceremony, in Berlin, on December 1, 2020. (Photo by Britta Pedersen / POOL / AFP) (Photo by BRITTA PEDERSEN/POOL/AFP via Getty Images)
Elon Musk’s 1-word tweet pumped $5bn into this stock. Source: Getty

A one-word tweet by the world’s richest man, Elon Musk, on Wednesday morning sent investors into a frenzy, pumping around US$4 billion into video game retailer, GameStop.

Shares in the company had been steadily climbing since Friday, when retail traders on Reddit thread Wallstreetbets, which has around 2 million subscribers, congregated to push the share price up.

By Tuesday, the share price of GameStop had surged 92.71 per cent to US$147.98, after trading as high as US$150 during the session.

But the action really began in after-hours trading, after billionaire Tesla CEO Musk tweeted late Tuesday night local time, but Wednesday morning AEDT: “Gamestonk!!”

The tweet links back to a Reddit thread from Wallstreetbets, which has around 2 million subscribers. It looks to be in response to a question posed by the thread, “What are your moves tomorrow?”

A short squeeze?

But the sudden blow-up in stock price has many speculating it’s a calculated attempt by those part of the Wallstreetbets Reddit thread to manipulate the stock market by using social media, and stop hedge fund managers from being able to “short” the stock.

“Shorting” is when you borrow shares of a company from a broker, sell them while the stock price is high and then buy them back later to return it to the broker they borrowed them from.

The hope is that you sell them high, buy them back at a cheaper price, and keep the difference.

But many are speculating these Reddit users are trying to “squeeze” the price and rort shorting hedge fund managers, by coordinating to buy the stock in order to inflate the price.

A “short squeeze” is when the price of the stock begins to climb. That forced traders trying to “short it” to buy it and stem their losses, which eventually drives the price up even higher.

In effect, hedge fund managers lose out - and the Reddit users gain.

What happened to GameStop?

According to CNBC, the price of GameStop surged more than 60 per cent in extended trading, and gained around US$4 billion in market cap after the tweet, reaching US$6.5 billion in market cap.

The stock has climbed around 400 per cent this year alone from a market cap of US$1.3 billion, after investor Ryan Cohen joined its board earlier this month.

‘Big short’ investor Michael Burry, who made the billion-dollar bet against the US housing market during the global financial crisis in 2008, gained 1,500 per cent on GameStop.

Burry’s investment management firm, Scion Asset Management, owned 1.7 million shares in the company. They were worth around US$17 million in September, but are now worth around US$251 million, after reaching even higher during session peaks.

‘Use Signal’

But it’s not the first time Musk’s tweet has sent stocks haywire.

On 7 January, Musk tweeted out two words: “Use signal”. In response, shares in a little-known Texas healthtech company, Signal Advance, went up over 1,500 per cent in a 24-hour period.

The company’s market cap surged from US$100 million from just US$7 million.

But Musk’s tweet wasn’t referencing that particular company at all - he meant for people to use WhatsApp rival Signal - which isn’t a public company.

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