Why is the meme stock frenzy making a comeback in 2025?

It’s happening again. Meme stock mania is back in full steam.

Once again, companies that most institutional analysts have stopped following for a while are exploding in value.

Stocks like Opendoor, GoPro, Krispy Kreme are attracting the attention of retail investors, in the same way GameStop and AMC did back in 2020-2021.

The games are back in play. Retail investors are coordinating online to push up the stock prices of heavily shorted stocks.

But it’s not just Reddit and Discord that are fueling the buying frenzy today. There’s also AI tools. It’s a complete new experience.

It appears that the stock market is fun again. Or is it?

What sparked the latest rally?

The initial catalyst was a hedge fund manager named Eric Jackson. Erick takes credit for being the reason behind Carvana’s surge over the past couple years.

On July 14, he posted a thread on X (formerly Twitter) claiming his AI model had flagged Opendoor as the next Carvana.

That post, along with the buzz it generated on Reddit, helped drive a 312% rally in the stock over six days.

At its peak, Opendoor traded 1.9 billion shares in a single day.

According to reports by Bloomberg, that was nearly 10% of all US equity trading volume. Option volume surged too, with more than 3.4 million contracts traded on Opendoor alone, more than any single day during the GameStop rally in 2021.

Source: Bloomberg

And just like with GameStop and AMC, Nokia, Blackberry back in 2021, other names followed shortly after Opendoor.

GoPro jumped 75% in a week. Krispy Kreme opened 39% higher on July 23 before closing the day up just 4.6%. Beyond Meat and Rocket Mortgage also joined the rally.

Collectively, these names formed a new meme stock acronym on Reddit: D.O.R.K. (DNUT, OPEN, RKT, KSS).

But these were not fundamentals-driven moves. The sentiment behind all of those companies was grim just before those spikes.

For example, Opendoor was recently at risk of being delisted from the Nasdaq. Khol’s recently ousted their CEO amid a conflict of interest scandal.

GoPro is facing legal battles with Insta360, while Krispy Kreme recently ended its partnership with McDonalds and halted its dividend.

In short, those were once again coordinated short-squeeze plays by retail investors and online communities. There’s nothing illegal about this, but these sort of rallies usually result in more losers than winners.

Is this 2021 all over again?

The 2021 meme stock rallies were enabled by zero interest rates, stimulus checks, and bored retail investors stuck at home due to the pandemic.

Traders coordinated on Reddit’s WallStreetBets and used low-cost trading apps to drive up the share prices of their favorite stocks.

Today’s conditions are very different. Rates are high. There’s no stimulus money. The economic backdrop is uncertain, with rising tariffs and weak earnings in several sectors. And yet, retail speculation is back in full force.

According to Citadel Securities, retail investors have been net buyers of equities for 19 straight sessions, the longest streak since early 2021. Retail activity in unprofitable tech stocks has surged to 25% of total volume, a record high based on Goldman Sachs data.

Still, this wave lacks the same explosive force. In 2021, GameStop’s lending rate spiked to 80% annualized, making it nearly impossible to borrow and hold short positions.

This created true short squeezes. Today, the cost to short Kohl’s or Rocket Mortgage is around 10%. That keeps pressure lower and limits upward momentum.

Hedge funds are better prepared this time. Liquidity is deeper. Market makers are more responsive. The result is sharper but shorter rallies that deflate just as fast.

Why is AI now part of the picture?

What makes 2025 different is the role of large language models like ChatGPT. Multiple retail traders have said they asked ChatGPT for stock picks. Some even report buying Opendoor after ChatGPT compared it to Carvana, similar to Eric Jackson’s recommendation.

And that turns out to be true. When users ask ChatGPT to name cheap stocks with big upside potential, it will list traits that mirror meme stocks: high short interest, misunderstood businesses, and founder-led narratives.

This isn’t random. In 2024, OpenAI signed a licensing deal with Reddit to train its models on forum data. ChatGPT has effectively absorbed years of Reddit logic, and that includes the meme-stock playbook.

Retail investors are now making decisions partly based on outputs generated by AI models trained on the very subcultures that created meme trading in the first place.

This creates a feedback loop: Reddit shapes AI, AI influences users, users post back to Reddit. The entire system reinforces itself.

What keeps driving retail into these trades?

At this point, the meme stock playbook is familiar: find a company that’s heavily shorted, cheap per share, and discarded by analysts. Post about it. Stir up a community narrative.

Add memes. Trigger options volume. Watch the chart go vertical.

Source: Bloomberg

But it’s no longer just about money. These trades are cultural. They carry identity value. Traders post slogans like “HODLTHE($OPEN)DOOR” or “Max pain on the shorts” to signal group loyalty.

For some, it’s about rebellion, a way to flip the script on Wall Street. For others, it’s entertainment. In a market where serious investing is increasingly algorithmic and institutionally controlled, meme stocks offer chaos, humor, and a sense of agency.

Online communities love memes and they are willing to bet their money on them as well.

There’s also a financial incentive for influencers and small hedge funds to play the game. A single tweet from a credible account can move millions in capital.

Unlike activist investors, meme-stock promoters often don’t disclose their positions. That regulatory blind spot remains unresolved.

Why the rallies always collapse

The data is clear: most meme stock rallies end quickly and painfully.

GameStop is still down over 70% from its 2021 high. AMC has lost 99% of its value since 2021. Faraday Future jumped from 4 cents to nearly $4 in 2024, then crashed back to penny-stock territory two weeks later.

In this latest round, Krispy Kreme lost nearly all of its gains in hours. Opendoor fell 20% on July 24, wiping out most of the week’s move.

The market is faster now. Institutions front-run Reddit trends. Quants have built scanners that monitor StockTwits and WallStreetBets in real time. Short squeezes are contained before they take hold.

What’s left is retail chasing momentum without the liquidity to sustain it. It’s casino-like futures with casino-like returns.

And yet, the cycle keeps repeating. AI didn’t invent meme stocks. But it may have made them permanent.

This new feedback loop where AI is trained on meme-trading behaviours could potentially fuel a new wave of “autonomous meme trading”.

Since meme stock trading logic is now embedded in AI models, future AI agents could identify unloved, massively shorted stocks, buy them algorithmically, then post on Reddit/X/Discord to drive more social momentum until they offload their shares for a quick profit.

That may sound dystopian. But if markets are narratives, then meme stocks are the loudest storytellers of the digital age, an indicaation of how modern finance is becoming just as much about culture and coordination as it is about cash flow and valuation.

Something to consider.

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