Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis-From zero to $12 billion; investors chase Trump stock hype

Stock MarketsOct 25, 2021 07:46AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Former U.S. President Donald Trump looks on during his first post-presidency campaign rally at the Lorain County Fairgrounds in Wellington, Ohio, U.S., June 26, 2021. REUTERS/Shannon Stapleton/File Photo

By Krystal Hu and Anirban Sen

(Reuters) - Donald Trump has united some of his supporters and detractors in buying shares in his new company and hoping to score a big win.

Anthony Nguyen, a 49-year-old software consultant from Austin, Texas, is a Republican who refused to vote for the former U.S. president in last year's election.

Last week he joined the millions of online day traders who drove up the value of the company that will house Trump's new social media venture to almost $12 billion. The company's app has yet to be rolled out even on a trial basis, and Nguyen said he invested because he wanted to make a quick profit, not because he believed in the business.

"Is Trump's social network going to work out? Probably not. But that doesn't mean you can't make money in the meantime," Nguyen said.

Shares of Digital World Acquisition Corp have risen 842% since the blank-check acquisition company announced on Wednesday it would merge with Trump Media & Technology Group, which aims to launch a social media network called TRUTH Social.

Trump Media was worth $8.2 billion based on the closing price of Digital World shares on Friday, while the company that would be created with the merger would have a close to $12 billion valuation. This assumes Digital World valued its shares in the deal at $10, as is customary for special purpose acquisition companies (SPACs). A detailed regulatory filing that will allow a precise calculation is expected this week.

Many of the investors snapping up the shares are political supporters or fans of Trump. Shane Springer, a 28-year-old salesman from Norristown, Pennsylvania, is holding on to the $1,300 worth of stock he bought on trading app Robinhood (NASDAQ:HOOD) last week until it goes "to the moon". He bought the shares for $13 and refused to sell even when they reached a high on Friday of $175.

"Trump has a strong history of making people a lot of money and winning. If this was an election I would have lost, but it's not, it's business," Springer said.

Nguyen, on the other hand, said he invested in the SPAC because he saw similarities with GameStop Corp (NYSE:GME), the video game retailer whose shares skyrocketed in January after an army of retail investors on Reddit and other social media platforms took on hedge funds betting against the company. The retail investors also piled into other "meme" stocks, from movie theater operator AMC Entertainment (NYSE:AMC) Holdings Inc to home supplies retailer Bed Bath & Beyond Inc (NASDAQ:BBBY).

Unlike GameStop and some other meme stocks, Digital World is a SPAC whose shares were not under pressure from hedge funds shorting them. But Nguyen said he detected the same exuberance for the Trump deal among retail investors.

He bought $4,100 worth of Digital World shares at an average cost of $41 per share, sold half of them for $4,800 when the stock was at $96, and a quarter of them for $3,000 when the stock reached $120. He has 25 shares left.

"People like to jump on things and if you are nimble enough you get in, double your money and get out," Nguyen said.

Spokespeople for Trump Media and Digital World did not immediately respond to requests for comment on the investor reaction to their deal.

Some investors are on the lookout for other stocks that could benefit from the hype. Last week Sam Nita, a 36-year-old construction worker in Portland, invested $2,800 in Digital World and $1,368 in U.S. software developer Phunware Inc, which worked on Trump's 2020 election campaign app. He heard about Phunware on trading app WeBull and made a $14,000 profit from the two stocks after Phunware shares rose as much as 1,471% on Friday.

"Everything MAGA (Make America Great Again) went nuts just like when Trump was president," said Nita, who voted for Trump in the past two elections. "I'm hearing friends who don't even do stocks that want to know how to buy this Trump stock."

Phunware chief operating officer Randall Crowder told Reuters he hoped "the excitement about Phunware" was because the company expected to deliver "quarter over quarter growth of 50% in the third quarter and over 100% in the fourth quarter," and because it was building a truly decentralized data economy on blockchain.

BIGGEST SPAC RALLY EVER

Investors trying to predict where the SPAC's shares are heading next say they have little to go by. Many of them found a presentation that Trump Media released last week on its business plan to be voluminous in its aspirations but thin on financial details.

Those who argue the stock could go even higher point to the large social media following Trump enjoyed before he was banned for encouraging his supporters to participate in the U.S. Capital attack on Jan. 6. He had 89 million followers on Twitter (NYSE:TWTR), 33 million on Facebook (NASDAQ:FB) and 24.5 million on Instagram, according to the presentation.

Investors bearish on the stock point to failures of other right-wing social media apps such as Parler. The fact that the rally in Digital World shares is already the biggest ever for a SPAC makes it more likely that people would be buying at the peak, they argue.

SPACs had lost much of their luster with retail investors before the Trump media deal came along. Many of these investors were left with big losses after the companies that merged with SPACs failed to deliver on their ambitious financial projections.

Jay Ritter, a finance professor at the University of Florida who focuses on capital markets, said a big risk for investors was the possibility that Digital World and Trump Media would seek to renegotiate the deal in light of the SPAC's stock rally, to keep more of the new company for themselves at the expense of retail investors.

"The higher the stock price goes, the more downside risk there is for investors," Ritter said.

Analysis-From zero to $12 billion; investors chase Trump stock hype
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
katya litski
katya litski Oct 25, 2021 12:47PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
article refuses to link to the stock
Rodney Dangerfield
Rodney Dangerfield Oct 25, 2021 8:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
well he does have a track record of great decisions lol
Steffen vdm
Steffen vdm Oct 25, 2021 7:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I guess not just $750 in federal income tax for 2021 for Trump...
Mr Stanley
MStanley Oct 25, 2021 7:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
apparently this story about 750 in taxes was fake news. Trump did pay some taxes, +/- 4m$ in total which is still silly amount comparing to what he gained during his presidency.
jason xx
jason xx Oct 25, 2021 6:05AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I can guarantee thr first people selling at the top will be the trump family.
New Jazenevd
New Jazenevd Oct 25, 2021 5:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Another propaganda piece from Reuters, disguised as a stock report. Of course, a stock report must start with another tale about a Republican, refusing to support Trump. Very much stock related.
jason xx
jason xx Oct 25, 2021 5:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Take it easy if the author isn't gargling trump spogee you guys say it's propaganda
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email