Jun 28, 2021 - Economy & Business

Wall Street quits meme stocks

Photo illustration of a stock ticker reading numbers and the shrug meme

Illustration: Lazaro Gamio/Axios

Wall Street analysts are bowing out of the hottest investment trend of the year.

Driving the news: The latest to throw in the towel is Baird, which as of today will no longer cover OG meme stock GameStop.

Why it matters: Longtime researchers are giving up trying to make sense of the meme stock frenzy — the latest sign of Reddit traders upending the old guard.

  • Bank of America and Telsey Advisory Group both stopped covering GameStop earlier this month.

The big picture: Analysts say Reddit-fueled trading is too detached from the video game retailer's actual business.

  • "[S]ocial media influences and other factors ... make it difficult, at least in the near term, to make a reasonable stock rating recommendation," Baird's Colin Sebastian wrote today about GameStop.
  • Bank of America also previously dropped its rating for fellow meme stock Bed, Bath & Beyond.

What they're saying: "I can understand why many are hanging up their hat right now because the things they do to predict the value of these stocks are broken," says Christine Short, vice president of Wall Street Horizon.

  • "If there is an approach to it ... it would be something around scraping tweets, activity on different blogs and trying to get a sense of the psychology," not typical fundamentals, says Gene Munster, a former research analyst who now runs Loup Ventures.

Where it stands: Just three analysts track GameStop now, according to FactSet — down from 10 before the mania took hold last year and the peak of 22 in 2014.

  • Where they see the stock finishing in 2021 ranges from $10 to $190. (GameStop's stock closed at $213 today.)

The bottom line: What Wall Street analysts covered once signaled what big-money institutional investors should pay attention to, says Leigh Drogen, founder of Estimize.

  • "The genesis of that attention has moved ... to 'what the hell is going on on Reddit boards?'"
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