AI can’t be fooled by GameStop’s pivot to NFTs and blockchain

Important takeaways

• Gamestop was the original meme stock, whose price went from under $20 to nearly $500 in less than three weeks.

• The company has struggled for profitability, and is now looking to transition to a digital first strategy, built on blockchain and web 3.0 games and an NFT marketplace.

• So far it hasn’t worked out too well, and GME is one of our AI’s best shorts this month.

It’s been over 18 months since the original Gamestop frenzy and the start of the meme stock. Despite the level of hype having died down since its peak, Gamestop is still hitting the headlines on the regular.

The die hard’s on the WallStreetBets Reddit forum remain convinced that the playoffs are yet to come for GME and that those with “diamond hands” who continue to hold will eventually see a big payoff.

Many on Wall Street disagree, and the company’s fundamentals remain a big question mark for investors.

Our AI analyzes thousands of data points to come up with long and short positions for stocks in our investment packages, and currently Gamestop is one of our top shorts of the month. The nature of the algorithm means that this position cannot be pinpointed to a single cause, but let’s take a look at the current status of Gamestop to see where the company stands by meme.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add another $50 to your account.

The original short clamp

You’ve no doubt heard about Gamestop and the meme stock craze already, but unless you were deep into Reddit in early 2021, you might not be up on the details.

It all came about after some posters on WallStreetBet’s subreddit found a high degree of short interest in Gamestop stock. A short is when a position is taken which essentially places a bet on the fact that a share price will go down.

To make this trade work, short sellers borrow a security and then sell it on the open market, expecting to be able to buy it back cheaper when the loan matures.

So for example, say a stock is at $100 and a short seller thinks the price is going to drop to $50. First, they will borrow the stock from someone else and sell it at the current market price of $100.

They then wait until the price falls to the target price, buy it back on the open market for, say, $50, and then return the stock to the investor they originally borrowed it from.

In this case, that means they have earned $50 per share. Of course they can make the wrong call and this is a very high risk strategy. In theory, the potential losses on a short trade like this are unlimited.

The stock in question may not fall, and it may actually rise. If the stock were to go up to $150, the short seller would be forced to buy it on the open market anyway at a loss of $50 per share, to give it back to the lender.

A short squeeze can occur when there is a high level of short positions relative to the amount of inventory available for sale. Say there are 1 million shares available on the open market for sale, and short sellers currently have 1.1 million open positions. This means that there are fewer shares available than there are positions that need to be closed.

This can cause huge competition in a short period of time, which can artificially cause the share price to skyrocket.

The Gamestop share price benefited from this situation, including an unprecedented level of buying pressure from retail investors. It saw the stock rise from below $20 on January 11, 2021 to reach a closing price of $347.51 on January 27, 2021 and an intraday price of $483.

Many hedge funds that had shorted Gamestop suffered significant losses as a result of the short squeeze. Melvin Capital was the big loser from the situation and was forced to liquidate the fund after suffering losses of $6.8 billion, representing 53% of its total portfolio.

Since the heady days of January 2021, the GME has returned to Earth, but it’s still higher than it was before the brief squeeze. The publicity has also provided a platform for the company to attempt to reinvent itself, after years of slow decline.

Gamestop’s post meme stock moves

So far, it’s an attempt that doesn’t seem to be working. A big part of the optimism surrounding Gamestop in early 2021 included Ryan Cohen, the founder of electronic pet supply company Chewy, disclosing a large position in GME and stepping in as chairman.

His role was to be in charge of a committee tasked with transforming the business away from the traditional bricks and mortar retail business, which was draining cash even before the global shutdowns.

The long-term goal for the company is to become the ‘Amazon of gaming’ and one of the first big steps they have taken since the short squeeze has been to launch their own non-fungible token (NFT) marketplace.

Launching any new cryptocurrency project in the current climate was always going to be a tall order, and so far it hasn’t gone according to plan. Total volume for NFTs and crypto trading is down massively so far this year, with even established players like Coinbase struggling to maintain revenue.

Daily revenue from the Gamestop NFT marketplace has been as low as $4,000, which is unlikely to be the turnaround that Gamestop is looking for.

They also implemented a stock split back in late July 2022, likely in an attempt to get away from the price anchor associated with the meme stock boom and with hopes of maintaining a higher market cap as a result.

Over the past few months, the stock has sporadically gone through cycles of dramatic price action, as investors get excited about the potential for “meme stock 2.0.” So far, these price gains have not been able to sustain, although the stock is still up more than 20% from six months ago.

The future of Gamestop

Regardless of how much hype is generated around the ticker symbol, Gamestop will have to make some big moves to turn the company around.

They lost $400 million in the 12 months to the end of April, and with just over $1 billion in cash, they only have so much runway until something has to give.

That’s not to say they aren’t working on it. Chairman Ryan Cohen is pushing hard to make Gamestop more tech-focused, with a large number of key tech hires and a notable level of attention to blockchain and web 3.0 gaming.

What this means for investors

Investing in Gamestop is a high-risk proposition, and from a fundamental standpoint, there are some significant headwinds on the horizon for the company.

Our proprietary AI looks at a huge number of data points, including fundamentals like earnings quality, technical momentum factors and trends and sentiment analysis from sources like Reddit and Youtube comments.

All of this data is combined to provide an overall long or short recommendation across our investment packages, and right now Gamestop is one of our AI’s best shorts for the month.

So while company executives may be able to tell a good story, AI can’t be fooled by a slick presentation.

The short squeeze party may potentially be over for GME, but that doesn’t mean there aren’t other options. We’ve created an AI-powered Short Squeeze Investment Kit that specifically seeks out and targets other short squeeze opportunities, based on historical data and technical indicators.

We use AI to identify stocks that have the potential to break out due to a short squeeze, and rebalance the positions every week to take advantage of the most up-to-date information.

If you prefer a more traditional investment strategy in companies already deep in the technology industry, our Emerging Tech Kit looks to invest in a variety of technology verticals, including ETFs, large and small tech stocks and cryptocurrencies.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add another $50 to your account.