crypto strategy

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

Key points to remember

  • GameStop was the original meme stock, which rose in price from under $20 to nearly $500 in less than three weeks.
  • The company has struggled with profitability and is now looking to pivot to a digital-first strategy, based on blockchain and Web3 games and an NFT marketplace.
  • So far it’s not working out so well, and GME is one of our AI’s best shorts for this month.

It’s been over 18 months since the original GameStop frenzy and the start of the meme stock craze. Despite the fact that the level of hype has diminished since the peak, GameStop is still making headlines regularly.

Die Hard on the WallStreetBets Reddit forum remains convinced that the end game has not yet arrived for GME, and that those with “diamond hands” that continue to hold will eventually see a big payout.

Many on Wall Street disagree, with the company’s fundamentals remaining a major question mark for investors.

Our AI analyzes thousands of data points to come up with long and short positions for stocks in our investment kits, and currently GameStop is one of our top shorts of the month. The nature of the algorithm means this position can’t be attributed to a single reason, but let’s take a look at the current state of the game for GameStop to see where the company stands after the meme.

Download today to access AI-powered investment strategies. When you deposit $100, we add an additional $50 to your account.

The original short compression

You’ve no doubt heard of GameStop and the meme stock craze before, but unless you were deep into Reddit in early 2021, you might not know the details.

It all happened after some posters on the WallStreetBets subreddit found a high level of short-term interest in GameStop stocks. A short position is when a position is taken that is essentially placing a bet that the price of a stock will fall.

In order to make this trade work, short sellers borrow a security and then sell it on the open market, in the hope that they can buy it back for less when their loan matures.

So, for example, let’s say a stock is at $100 and a short seller thinks the price will fall to $50. First, they will borrow the shares from someone else and sell them back at the current market price of $100.

Then they wait for the price to fall to their target price, buy it back on the open market for, say, $50, and then give that stock back to the investor they originally borrowed it from.

In this case, that means they made a profit of $50 per share. Of course, they could get the wrong call, and that’s a very high-risk strategy. In theory, the potential losses on a short trade like this are unlimited.

The stock in question might not fall, and it might even rise. If the stock were to rise to $150, the short seller would be forced to buy it on the open market anyway for a loss of $50 per share, in order to return it to their lender.

A short squeeze can occur when there is a high level of short positions relative to the amount of stock available for sale. Let’s say there are 1 million shares available in the open market to sell and short sellers currently have 1.1 million open positions. This means that there are fewer stocks available than positions to close.

This can cause huge competition in a short time, which can artificially skyrocket the stock price.

GameStop’s share price has benefited from this, including an unprecedented level of buying pressure from retail investors. It saw the stock go from below $20 on January 11, 2021 to a closing price of $347.51 on January 27, 2021 and an intraday price of $483.

Many hedge funds that had bypassed GameStop suffered significant losses due to the short squeeze. Melvin Capital was the big loser in the situation and was obliged to liquidate their funds after suffering losses of $6.8 billion, which represents 53% of their total portfolio.

Since the heady days of January 2021, GME has returned to Earth, but it is still higher than it was before the short squeeze. Advertising 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 work. Much of the optimism surrounding GameStop in early 2021 included Ryan Cohen, the founder of online pet supplies company Chewy, revealing a major position in GME and becoming chairman.

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

The company’s long-term goal is to become “the Amazon
of gaming’ and one of the first major steps they’ve taken since the short squeeze was to launch their own non-fungible token (NFT) marketplace.

Launching any new cryptocurrency project in the current climate was always going to be a difficult task, and so far, it hasn’t gone to plan. The overall volume of NFTs and crypto trading has dropped significantly so far this year, with even established players like Coinbase struggling to maintain revenue.

GameStop NFT Market daily revenue has been as low as $4,000which will hardly be the turnaround story that GameStop is looking for.

They also implemented a stock split in late July 2022, likely in an effort to move away from the stock boom meme price peg and in 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 of the “meme stock 2.0”. So far, these price increases have failed to last, even though the stock is still up more than 20% from six months ago.

The future of GameStop

Regardless of the hype generated around the stock symbol, GameStop needs to take significant steps to turn the business around.

They’ve lost $400 million in the 12 months to the end of April, and with just over $1 billion in cash, they have little lead until something has to give. .

That doesn’t mean they aren’t working on it. Chairman Ryan Cohen is working to make GameStop more technology-focused, with a large number of key technology hires and a notable focus on blockchain and Web 3.0 games.

What this means for investors

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

Our proprietary AI examines a large number of data points, including fundamental data such as earnings quality, momentum technical factors and trends, and sentiment analysis from sources such as Reddit comments and Youtube .

All of this data is combined to provide an overall long or short recommendation on our investment kits, and right now GameStop is one of our AI’s top shorts for this month.

So while business leaders might be able to tell a good story, the AI ​​can’t be fooled by a polished presentation.

The short squeeze party could potentially be over for GME, but that doesn’t mean there aren’t other options. We created an AI-powered tool Short Compression Investment Kit which specifically searches for and targets other short squeeze opportunities, based on historical data and technical markers.

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

If you prefer a more traditional investment strategy in companies that are already deeply entrenched in the tech industry, our Emerging Technology Kit seeks to invest in a range of tech sectors, including ETFs, large and small cap tech stocks and cryptocurrencies.

Download today to access AI-powered investment strategies. When you deposit $100, we add an additional $50 to your account.


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