Bed Bath & Beyond Leads Meme Stock Rally with 50% Jump; AMC Gains 16%

A group of highly speculative stocks rallied double digits on Wednesday as retail investors pushed meme names up again in the new year. This comes after a dismal 2022 for these stocks, which have been highly volatile in recent years.

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Bed Bath & Beyond surged 50% in morning trading Wednesday, with shares last trading up 39%. GameStop, the original star of 2021's meme stock mania, climbed more than 5% after earlier gains of over 10%. AMC Entertainment soared about 16%.

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The rally in Bed Bath & Beyond was initially triggered by news that it would lay off more employees. The company is trying to reduce costs in order to stay in business.
On the same day that Bed Bath & Beyond reported disappointing fiscal third-quarter results, the home goods retailer told employees that it is eliminating the chief transformation officer role, which is held by Anu Gupta. Bed Bath & Beyond is approaching a potential bankruptcy, as its sales decline and losses grow.

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Adam Crisafulli, founder of Vital Knowledge, has expressed skepticism about the recent rally in so-called "nonsense stocks" like AMC, CVNA, GME, BBBY, and PRTY. In his view, the strength in these stocks is due to blind speculation rather than fundamentals.

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In early 2021, a group of retail traders joined forces on social media to bid up a number of heavily shorted stocks, resulting in massive short squeezes that inflicted significant pain on short sellers. These meme stocks experienced significant pullbacks last year when risk sentiment shifted amid aggressive rate hikes. GameStop fell 50% in 2022, while AMC tumbled 75% and Bed Bath & Beyond plunged 82%.

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The short interest in these names has come down from its peak after the jaw-dropping episode, but it still remains much higher than average.
According to S3 Partners, about 48% of Bed Bath & Beyond's float shares are sold short, compared with an average of 5% short interest in a typical U.S. stock. For GameStop, the short interest stands at 21%, down from more than 100% at the height of the meme stock mania in 2021, according to FactSet. AMC also has 21% of shares sold short.

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A short squeeze occurs when a stock price rises sharply, forcing short sellers to buy back shares to limit their losses. The resulting short covering can fuel the stock's rally even further.