Much if the story of AMTD Digital’s meteoric growth, a barely profitable financial services company, is similar to that of the meme-stock craze from the previous year, it is even more puzzling.
Even after a retail bonanza that saw GameStop become the most popular stock in the world and a joke cryptocurrency with a dog theme acquire billions of dollars in value, the frenzied trading in a small-time Hong Kong finance company stands out as amazing.
Much while the story of AMTD Digital’s meteoric ascent is similar to the meme-stock craze from the previous year, it is even more puzzling. AMTD Digital is a barely profitable financial services company. The company’s shares surged in less than three weeks from its $7.80 initial public offering price to an intraday high of $2,555, an astounding increase that has baffled the financial community.
Even more puzzling may be the fact that AMTD’s IPO prospectus reports total revenues of only $25 million for the year ended April 2021, in contrast to other publicly listed financial behemoths that declare hundreds of billions of dollars in revenue each year. The company’s market value nevertheless soared to $310 billion at closure on August 2, surpassing titans of the sector including Goldman Sachs Group and Bank of America.
Max Gokhman, chief investment officer at money management AlphaTrAI, said, “I’m not exactly sure what the business model there is, but that hasn’t mattered to the Reddit community who are plunging in like piranhas.
The reign of AMTD as a financial juggernaut is likely to be short-lived, much like the retail-induced craze of early 2021, which sent companies like GameStop and AMC Entertainment Holdings to astounding highs before they fell just as fast. AMTD Digital has lost 57% of its value after reaching a record on Tuesday, wiping away around $175 billion in market worth. That exceeds the whole market value of businesses like Morgan Stanley, Intel, and Goldman Sachs combined.
However, it’s difficult to blame the stock’s erratic movements only on the retail sector. Even though AMTD Digital frequently showed up towards the top of Fidelity’s list of the most actively traded companies during the previous week, it is deficient in a few crucial elements.
To begin with, AMTD Digital doesn’t currently have any traded options. The spikes in the prices of GameStop and AMC stocks were characterized by irrational call option purchasing. The majority of the changes over the previous week have also been accompanied by unusually low trading volumes. The stock has failed to surpass 500,000 shares traded in a single day, despite seeing fluctuations of at least 40% in either direction on all but one day in the previous week. Just over 50,000 shares were traded on Friday, marking the sixth day in a row with falling activity.
Even a basic check of the most popular postings on Reddit’s WallStreetBets forum reveals a deluge of denials of any involvement from the retail traders themselves.
