Trumpanddump: speculators bet on Truth Social stocks
Mohammed Al Shalloudi, a 21yearold graduate data analyst in the United Arab Emirates who invested in Donald Trump’s socialmedia company, has little in common with the former U.S. President’s political supporters.
Mr. Al Shalloudi bought shares in Trump Media and Technology Group (TMTG), but not because he believes in the business of its app Truth Social or because he is a Trump fan. He is part of an army of speculators seeking a quick lucrative trade whose bets on TMTG have made it one of the most overvalued and activelytraded U.S. stocks.
Mr. Al Shalloudi said he bought at $37 per share and cashed out late last week at $65 per share, clinching a 76% return on his $4,000 investment in just a few days.
TMTG’s stock closed on Monday at $48.66 after listing on Nasdaq last week in a deal that valued it at just $10 per share.
“It was a nobrainer. You buy the stock, wait for Trump’s fan base to hear about it, and enjoy your profit,” he said.
Reuters interviews with more than a dozen investors that posted about their positions on socialmedia platforms such as Reddit and ◣ found most were looking to score a quick profit. They bet Mr. Trump’s supporters’ fascination with the stock was untethering TMTG’s stock price from the company’s business fundamentals.
TMTG’s current valuation of about $6.6 billion is equivalent to about 1,600 times the lossmaking firm’s revenue in 2023 of $4.1 million, according to LSEG data.
No other U.S. company of similar market capitalisation has such a high valuation multiple, the LSEG data shows. This is despite
TMTG warning investors in regulatory filings that its operational losses raise “substantial doubt” about its ability to remain in business.
The stock is also among the most actively traded, according to Trade Alert data. While social media posts indicate some of Mr. Trump supporters have bought TMTG shares, a lot of the trading volume is coming from speculators looking for a quick flip.
“I invested $10,000 last Tuesday because MAGA is crazy and they will pump the stock,” said Sarah, a 21yearold software developer from Pennsylvania who asked for her last name not to be published. MAGA stands for Trump’s campaign slogan, ‘Make America Great Again’.
The appeal of TMTG to speculators helps explain the stock’s volatility. The shares have risen as much as fivefold in the last two months and are currently valuing Mr. Trump’s majority stake in the company at about $3.8 billion.
Bout of volatility
The bout of volatility came on Monday, as the stock lost more than fifth of its value. It remained unclear whether hedge funds and other Wall Street firms will get comfortable with such risks to join the speculation. Big investment firms will be required in a few weeks to disclose what, if any, their position in TMTG was at the end of March.
Most rallies of stocks that trade based on hype among individual investors — socalled ‘meme’ stocks such as GameStop and AMC Entertainment — have fizzled after a few weeks or months. Mr. Trump is not allowed to sell or borrow against his TMTG stake for six months, so the rally must last at least that long if he is to capitalise on the euphoria by cashing out.
A TMTG spokesperson did not respond to a request for comment on the impact speculators are having on the company’s market value.
James Angel, an associate finance professor at Georgetown’s McDonough School of Business, said it would be risky to predict when TMTG’s valuation will drop to more accurately reflect its business prospects.