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After the stock-market frenzy that ensued when Trump Media & Technology Group started trading on Tuesday (under the ticker symbol DJT), one thing is almost certainly true: Donald Trump is now the chairman of the most overvalued company on Nasdaq.
Trump Media had a grand total of $3.4 million in revenue in the first nine months of 2023, against more than $10 million in operating losses. Its only product is Truth Social, Trump’s right-wing Twitter clone, which has a tiny user base, few advertisers, and no real prospect of challenging the dominant players in the social-media space. And yet, as of market close on Tuesday, Trump Media was valued at almost $8 billion, making it worth more on paper than The New York Times.
Trump Media is, in other words, a meme stock. Like GameStop and AMC before it, it trades not on fundamentals, but on emotion. Exploiting that emotion is, you might say, Trump Media’s real business. And the only surprising thing about Trump orchestrating such a scheme is that it took him so long to do it.
What distinguished GameStop and AMC from classic bubbles, after all, was that the buying frenzies that propelled them to unsustainable heights were driven by a conscious collective effort on the part of retail investors, many of whom communicated with one another on Reddit and other message boards. These people wanted to make money, but they were also animated by a vague “Stick it to the man” worldview, built on resentment of short sellers, hedge funds, and “elites” more generally.
This was a situation tailor-made for Trump to exploit. He cultivates a populist, anti-elite image, and has legions of true believers who are convinced that, on top of having been a great president, he’s a great businessman. For these people, buying Trump Media stock—which inflates Trump’s net worth because he owns 58 percent of the company—is an easy way to register their commitment to him and own the libs, while also potentially getting rich. That’s why Truth Social on Tuesday was replete with messages from users urging Trump supporters to drive up Trump Media’s price and “drive the liberals insane!”
The nice thing about this for Trump is that Trump Media’s dismal business prospects are basically irrelevant to its valuation. The prospectus for the merger of Trump Media and the special-purpose acquisition company Digital World Acquisition Corp. includes a seemingly endless list of risk factors, including the fact that “a number of companies that were associated with President Trump have filed for bankruptcy.” It offers no plausible path to rapid growth, let alone to profitability. And it doesn’t even provide a detailed picture of Truth Social’s current operations: Digital World—a shell company that appears to have been created for the sole purpose of taking Trump Media public—says in the prospectus that Trump Media did not provide it with “complete financial information.” Remarkably, Trump Media says that it has no plans to report, and in fact doesn’t even collect, data on how many active users Truth Social has, how many new users it’s signing up, or how many ad impressions it’s generating.
In other words, Trump Media’s message to investors who might want to evaluate its performance boils down to “Trust us.” And although that would normally send investors scurrying, it’s just fine for the retail investors who have been snapping up shares of DJT. They most likely feel no need to peruse the Digital World prospectus for risk factors. They trust Trump.
Even if Trump Media can rely on Trump supporters to keep its stock up, at least for the moment, plenty of volatility is still in store, because speculators will look to cash in on the meme-stock mania by either riding the stock up or selling it short. On Tuesday, for instance, the stock rose as high as $79 a share but then tumbled 28 percent in a couple of hours to close at $58. But the Trumpian retail investors should help keep the stock from totally cratering.
The question, though, is: For how long? In principle, a company’s stock price can stay completely out of whack with its fundamentals forever, as long as investors are collectively willing to pay more than it’s worth. But the history of meme stocks suggests that investors’ collective will to keep a stock up does eventually erode, whether because they cash out, lose faith, or just get bored. (GameStop and AMC now trade for a tiny fraction of their all-time highs, while Bed Bath & Beyond, another former meme-stock juggernaut, went bankrupt.) Trump Media investors may well feel more allegiance to Trump than GameStop investors felt to GameStop. But there’s still little doubt that this will end poorly for most of them.
That doesn’t mean it will end poorly for Trump, though. His stake in Trump Media is now worth more than $4.5 billion. Even if Trump Media’s stock fell 90 percent by the time Trump is allowed to sell his shares, in six months, he would still have almost half a billion dollars’ worth of stock to sell. Which, in a perverse way, suggests that he’s every bit the shrewd businessman his investors believe him to be.
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