Donald Trump’s lossmaking social media company has become a magnet for fast-moving day traders, vying with Elon Musk’s Tesla and chipmaker Nvidia for their attention as politics moves up the agenda for retail investors.
Trump Media & Technology Group, which operates Truth Social, has been among the three most-traded stocks on Interactive Broker’s platform for the past two weeks, alongside the two far-larger companies.
The company — which takes its DJT ticker from the president-elect’s initials — remains a minnow despite the frenzied trading, though its equity valuation of $6bn dwarfs the $2.6mn it has reported in revenues so far this year. The volatile stock has averaged a daily swing of about 7 per cent this year.
Tesla, Musk’s electric-car maker, is worth about $1tn by contrast and Nvidia is valued at $3.6tn. Strategists said TMTG’s presence alongside such giants suggested similarities with the 2021 meme stock mania when valuations of companies popular with active traders, including retailer Gamestop and cinema chain AMC, soared far beyond their business fundamentals.
“Being up there with Nvidia and Tesla but being a fraction of the size is a feature of meme stocks,” said Steve Sosnick, chief strategist for Interactive Brokers, an online platform with a large base of active traders.
“When you see multiples of the float trading, it’s no longer about investment, it’s about trading pure and simple,” Sosnick added. “This is day trading — its aggressive, highly active traders seeking opportunities in a high volume, high volatility situation.”
On average almost 90mn shares of TMTG have traded daily so far this month, compared with fewer than 9mn a day in the six months from late March, when the company floated, to the end of September. Meanwhile, volume in the original meme stock darling, GameStop, has slid nearly two-thirds since July.
High share turnover can lead to dramatic price swings. TMTG’s recent volumes are equivalent to almost all the shares not held by Trump or insiders. Tesla and Nvidia typically see between 1 per cent and 3 per cent of their free float trading on any given day.
Online broker Robinhood said TMTG had often appeared among its top 10 most-traded this month while figures from Vanda Research, an investment flow specialist, showed ongoing net inflows into the company this week from small traders, although down from peak levels leading up to the election.
“Retail investors were trading DJT along with the election odds, and now that’s over, [it has] become a game of hot potato where they just go in and out,” said Vanda’s Marco Iachini.
Retail traders on Reddit’s trading forums have regularly compared DJT, as the stock is known, with GameStop, the brick-and-mortar video game outlet whose shares were popularised by retail investor Keith Gill, under his social media nom de guerre Roaring Kitty.
“I absolutely love DJT as a stock,” said Ash Jatla, a UK-based Reddit user, who bought in after the shares began rising in September and doubled his money. But he distinguished between trading bets like DJT and investments, a category in which he puts Tesla.
“It’s a different thing. I invested in Tesla, because even if Trump wins or loses, there is factual information backing Tesla — the company is good, it is fine for long-term investing,” he added.
Since the election, TMTG’s shares have also fallen by 17 per cent — a stark contrast to other so-called Trump trades that have done well out of Trump’s triumph, including Tesla, bitcoin and the broader US stock market. All three have risen, with bitcoin hitting a record and Tesla rallying by 28 per cent.
TMTG’s slide has wiped $1.3bn off the company’s value and $670mn from Trump’s personal fortune. Its shares make up more than half of the president-elect’s $5.7bn wealth, as calculated by Bloomberg, with the rest consisting of property, cash and golf resorts.
Tesla’s rally, however, spurred by founder Elon Musk’s closeness to Trump, has enriched the car entrepreneur by more than $28bn.
Trump holds 53 per cent of TMTG’s stock, according to filings. Beyond his stake, the company has touted its largely retail shareholder base as a sign of support for its aims.
Last Friday the president-elect used Truth Social to blast what he called “fake, untrue, and probably illegal rumours” that he might sell TMTG shares — something he said he had no intention of doing.
Even with the added attention of the election, Truth Social remains tiny in terms of its reach, averaging 646,000 daily visits to its website this month, according to Similarweb, compared with 155mn a day for Musk’s X platform.
“I can’t imagine any real equity analyst is bothering to look at this now, purely a trading vehicle at this point,” said Matthew Tuttle, a portfolio manager who runs thematic exchange traded funds. “From a traditional valuation standpoint it’s probably worthless.”
Volatility in TMTG has been so extreme that it has led to Tuttle delaying plans, with boutique ETF provider Rex Shares, to launch a leveraged fund seeking to provide twice the daily return or loss of TMTG.
Leveraged ETFs are a favourite of short-term day traders looking to juice their returns. Tuttle still plans to launch the fund when the shares have calmed down.
Bets on a fall in TMTG’s shares have remained roughly steady with 17mn shares sold short — that is, used in trades that stand to profit from a fall in the share price. The bets are equivalent to almost 8 per cent of the company’s shares.
Finding shares to borrow for short trades has been made harder by the small number of large shareholders, who are more likely to lend their holdings.
“Its longs, not short sellers, driving this market. The ability to borrow stock is very thin,” said Matthew Unterman, managing director at S3 Partners, a financial data specialist. “There is the possibility for a short squeeze if the price rises but so far shorts are holding the line.”
Read the full article here
