Reddit’s WallStreetBets Has Nothing To Do With AMTD Digital’s 30,000% Pump

reddit’s-wallstreetbets-has-nothing-to-do-with-amtd-digital’s-30,000%-pump

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Key Takeaways

  • AMTD Digital’s stock price increased from $7.80 at its IPO on July 15th to $2,555 less than three weeks later
  • Reddit’s WallStreetBets forum was originally thought to be behind the meteoric rise, but that’s now looking less likely
  • AMTD Digital’s founder Calvin Choi is currently appealing a two year ban from regulated activities in Hong Kong, and their parent company AMTD Idea has a history of collapsed IPOs

For a brief period of time, a no name company that only listed on the stock exchange around three weeks ago was one of the 15 most valuable companies in the world.

At one point hitting a market cap of $450 billion, it was valued higher than Meta, Walmart, Visa, Disney, JP Morgan Chase and McDonalds. All this from a company with only $25 million in annual revenue. To put that into context, Walmart generates that same amount every 23 minutes.

A quick look at the company website leaves more questions than answers, with a plethora of buzzwords and a promotional video that includes Star Wars-style spaceships and laser beams.

The reporting on the story initially laid the insane price action at the feet of Reddit’s infamous WallStreetBets army of retail traders. It appeared that this was another meme stock that the group had latched on to, after the previous surge of interest in stocks like GameStop and AMC.

Spend a little time on the WallStreetBets forum, and it becomes pretty clear that they’re just as confused as everyone else. In the heady days of GameStop, posters laid out their plans in extreme detail and followed every minor shed of news or information on the story. There’s been none of that with AMTD Digital.

So far, the conversation there seems to be centered around how ridiculous it is that WallStreetBets is being brought into the story at all.

But if it’s not them, then how else can you explain a stock that has risen from an IPO price of $7.80 on July 16th to reach as high as $2,555 on August 2nd? There are a few theories going around, but first let’s cover what’s happened over the past few weeks.

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Who is AMTD Digital?

AMTD Digital is a Hong Kong based, Cayman Islands incorporated company which is very broadly listed as operating a ‘digital solutions platform’. The company website touts their digital credentials in everything from banking to insurance to media, content and marketing.

The site and their promotional material is vague. Delving a little into the source of companies revenue, it appears to show the majority of it coming from membership fees to their SpiderNet Ecosystem Solutions, which AMTD Digital bills as a “fusion reactor for the best entrepreneurs.”

As well as revenue from these membership fees and their other digital financial services operations, the company has also invested in various media properties across Asia, including the action movies “The White Storm 3” and “Shockwave 2.”

Talk about diversification.

AMTD Digital is listed on the New York Stock Exchange (NYSE) under the ticker HKD, and the price soared from the very first day of its listing. The price rise picked up pace before reaching a crescendo on August 2nd, hitting its all time high of $2,555.30.

As the media coverage has grown in recent days, the stock has plummeted from these heady heights down to $800, but it’s still up over 10,000% as of the market close on Thursday.

What makes the valuation even more crazy, is that AMTD Digital (HKD) is almost wholly owned by its parent company AMTD Idea (AMTD), which is also listed on the NYSE. AMTD Idea has a market cap of just $1.6 billion as of Thursday’s close, which means its valuation is almost 100 times less than the company it owns the majority share of.

What’s caused the stock to skyrocket?

These days, whenever a stock price rises quickly for no apparent reason, Reddit and WallStreetBets are the natural first culprits. The retail traders on the site have previously been a major factor in the rise of meme stocks like GameStop, AMC and Blackberry.

That’s exactly what happened with ATMD Digital, with much of the initial coverage calling AMTD a new meme stock and pointing the finger at Redditors. However, it doesn’t look like that’s the case.

The first piece of evidence is the trading volumes of AMTD Digital stock. At the height of the GameStop frenzy, trading volumes were massive. In a single day of trading there were 788 million shares that were bought and sold, which represented volumes that were 300% of the total available stock.

It means that on average, one GameStop share was being bought and sold three times in a single day. That is a massive amount of trading and shows just how much interest and euphoria surrounded the company at the time.

AMTD Digital has a much lower number of shares issued on the public market, and even so, the highest the trading volume has ever reached is only 12% of the available stock.

Secondly, even a cursory glance over the WallStreetBets forum makes it pretty clear that this isn’t the result of a Reddit retail trading army. Most of the posts relating to AMTD Digital are memes making fun of the media’s accusations that they’re responsible for the rapid price rise.

So if it’s not Reddit, who’s responsible?

The company itself has come out with a statement that included the line, “To our knowledge, there are no material circumstances, events nor other matters relating to our Company’s business and operating activities since the IPO date.”

So, they apparently don’t know either.

Suggestions of market manipulation

Some analysts are suggesting that the highly unusual price action may have a more sinister origin. Hindenburg Research is an investment research house that specializes in reports outlining corporate fraud, and their founder Nate Anderson released a scathing hypothesis of the situation on Tuesday.

He outlined the history of previous known IPOs from AMTD Idea, the parent company of AMTD Digital, showing that all 15 of them had collapsed, with a median decline of 85.6% from their IPO.

There have also been allegations of fraud against senior executives at AMTD Digital, including the company’s founder Calvin Choi, who is currently appealing a two year ban from regulated activities in Hong Kong.

At this stage, no one knows for sure what’s going on behind the scenes and who’s really responsible for the meteoric price rise.

What does this mean for investors?

Even with the last two days of massive losses, AMTD Digital was still valued at $148 billion as of the market close on Thursday. That’s more than Morgan Stanley, Intel, AT&T and CVS.

That means that unless there’s some big secret reveal in the next few days that AMTD Digital has discovered a cure for cancer, there’s only one direction for the stock price to go long term. Any investors considering buying into this now should be prepared for some major losses.

While massive price rises like this are unusual, they do happen from time to time. The original meme stock, GameStop, rose dramatically due to the level of short interest in the stock causing traders to anticipate what’s known as a ‘short squeeze.’

Shorting a stock means essentially placing a bet on the fact that a stock is going to go down in price. Short sellers arrange to sell a stock at a point in the future, on the expectation that the price will go down in the meantime which will allow them to make a profit.

Problems can arise if there is a lot of short interest, because there may not be enough shares readily available for sale for all the short sellers to fulfill their obligations. This can create what is known as a ‘short squeeze’, as demand rapidly increases due to short sellers needing to cover their positions.

It’s this scenario that kicked off GameStop mania, but it can happen for other stocks too. At Q.ai, we’ve harnessed the power of AI to seek out and invest in stocks that have the potential to blow up due to a short squeeze.

Our Short Squeeze Kit uses AI and machine learning to track companies with high short interest, as well as sentiment data from sources like Reddit and YouTube to find heavily shorted stocks with the potential to breakout.

The trade is automatically rebalanced every week, to take into the account the most up to date data and information.

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