In a war over GameStop, big funds yield to smaller investors

Across most of America, GameStop is just a place to buy a video game. On Wall Street, though, it’s become a battleground where swarms of smaller investors see themselves making an epic stand against the 1%.

The funds serving the financial elite are starting to walk away in defeat. Big bets they made that GameStop’s stock would fall went wrong, leaving them facing billions of dollars in collective losses. All the wild action pushed GameStop’s stock as high as $380 on Wednesday, up from $18 just a few weeks ago.

The stunning seizure of power gives some validation to smaller-pocketed investors, many of whom are encouraging each other on Reddit and are trading stocks for the first time thanks to all the brokerages offering freetrading apps. It’s also left much of Wall Street asking if the wildness is proof the stock market, which recently traded at record levels, is in a dangerous bubble about to pop.

Two investment firms that had placed bets for money-losing GameStop’s stock to fall have essentially thrown in the towel. One, Citron Research, acknowledged Wednesday in a YouTube video that it unwound the majority of its bet and took “a loss, 100%” to do so. But Andrew Left, who runs Citron, said that does not change his view that GameStop’s stock will eventually go down.

Before its recent explosion, GameStop’s stock had been struggling for a long time. The company has lost $1.6 billion over the past 12 quarters and its stock fell for six straight years before rebounding in 2020.