Meme Stocks Take a Hit Amid Market Decline

Wall Street experienced a rough day on Thursday, marking the worst performance in over a month, but meme stocks have fared even worse this week. Major U.S. indexes, including the Dow Jones Industrial Average which fell around 800 points, saw their most significant single-day drop since early October. The Nasdaq Composite Index also dropped by 2%. The Dow is expected to wrap up the week with some gains, whereas the Nasdaq looks to close negative.

In contrast, meme stocks, particularly those in exchange-traded funds (ETFs) focused on the category, have taken a considerable beating. The Meme Stocks ETF (MEME) from Round Hill Investments, relaunched last month, was projected to end the week down 12% as of Friday morning. It includes firms like Rigetti Computing, D-Wave Quantum, and IonQ, which saw declines of 43%, 37%, and 27%, respectively. Additionally, NuScale Power, a stock linked to growing power generation for AI data centers, plummeted 48% by mid-morning Friday.

Investor Peter Boockvar attributes these declines to a general pullback in speculative generative AI stocks. He pointed out that Oracle’s stock has fallen 34% from its September high, while Meta’s shares are at their lowest since May. “Investors are starting to question how capital is being funneled into a business model that remains uncertain regarding revenue from genAI,” noted the Chief Investment Officer of One Point BFG Wealth Partners.

Boockvar suggested that part of this decline might be due to investors cashing in on profits before the year’s end. He recognized that similar trends could be impacting other assets like gold and silver. “The recent actions of companies like Oracle and Meta have led investors to reconsider overall spending,” he elaborated. “If there’s a spending cut, then those who benefit from it will also be at risk.”

He added that the downturn in the genAI sector could have significant consequences, not just for stocks but for the broader U.S. economy. “Once these issues become widespread in the S&P, controlling them becomes challenging,” Boockvar stated. “With around 40% of S&P doing this sort of trading, if it collapses, it’s hard to expect the remaining 60% will keep the market buoyant.”