Meme Stocks Are So Back — Here’s Why Most Investors Should Avoid This High-Risk Trade

If you thought meme stocks had ridden off into the sunset, think again. Shares of companies such as Krispy Kreme and Kohl’s saw unusual surges starting in mid-July. The frenzy earned the “DORK” label for the companies that saw their shares jump: Krispy Kreme (DNUT), Opendoor Technologies (OPEN), Rocket Companies (RKT) and Kohl’s (KSS).

All four companies saw their stocks post gains of more than 10 percent in just a couple of weeks, with Opendoor shares more than doubling. 

The meme stock craze has been a recurring theme in recent years as shares of heavily shorted and fundamentally challenged businesses attract unusual interest from retail traders. 

So-called meme stocks first entered the investing landscape in early 2021, most notably when shares of GameStop went from around $3 to more than $120 in the span of a few months after Keith Gill’s posts on the Reddit discussion group Wallstreetbets. The posts are credited with sparking the GameStop rally and led to surges in the shares of other fundamentally troubled companies including AMC, BlackBerry, Bed Bath & Beyond and more. 

The investors were targeting these stocks with the hope of initiating a short squeeze, which could drive the stock price higher and higher as those who were short rush to buy and cover their positions.

The extra attention can lead to massive price moves in the short term, but they can fizzle out just as fast.

Meme stocks in 2025: Why most investors should avoid them

The exact reasons for the rise of meme stocks again in 2025 are hard to pinpoint. When the initial frenzy began in 2020 and 2021, people were largely at home as a result of the pandemic and had extra money due to government programs or just increased savings. For the most part, those conditions aren’t in place today.

Another reason for the initial meme stock trades may have been that interest rates were near record lows. Cash offered almost nothing in the way of a return, so trading stocks may have felt like a way to earn something, despite its high risk. But interest rates are higher now and savers earn decent yields on the cash they hold. 

Part of the challenge in explaining the price movements of meme stocks is that the change in share price can’t be explained by the fundamentals of the underlying businesses. Krispy Kreme shares jumped nearly 50 percent in mid-July despite reporting first-quarter results that showed a decline in revenue and a net loss for the period. 

But people trade stocks for many reasons, not all of them supported by sound financial logic. A single social media post from Roaring Kitty, the name Gill uses on X and YouTube, may ignite the animal spirits that were in place during the pandemic, causing people to rush to buy shares of the same stocks to ensure they don’t miss out on potential gains.

But traders should keep in mind that prices can correct quickly. Krispy Kreme shares have already fallen almost 20 percent from their July peak.

Legendary investor Warren Buffett offered an observation on market behavior in his 2023 letter to Berkshire Hathaway shareholders.

“For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young,” 94-year-old Buffett wrote. “The casino now resides in many homes and daily tempts the occupants.”

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.