The surge in the shares of Digital World Acquisition Corp., driven by small investors eagerly anticipating the public debut of Truth Social, echoes the meme stock craze of 2021. Despite concerns over the long-term viability of the social-media venture, enthusiastic supporters of Donald Trump, the Republican presidential nominee, are rallying behind the stock.
Users of Truth Social, numbering nearly 8,000 in a dedicated forum, express fervent support for the merger, viewing it as a pivotal moment in what they perceive as a “Truth Movement.” Many investors, like the user fantasticblush, are purchasing shares as a gesture of solidarity rather than based on traditional investment rationale.
The stakes of this speculative frenzy extend beyond the stock market, given that Trump stands to gain approximately $3.5 billion if the merger is approved. This windfall could provide much-needed financial relief, particularly in light of a substantial $454 million judgment against him in a civil-fraud case.
The mechanism behind this potential windfall involves the social network’s parent company going public through a merger with a special-purpose acquisition company (SPAC). With a shareholder vote scheduled for Friday, the Trump-led company could soon replace the shell company in the stock market, trading under the ticker symbol DJT, a symbolic reference to Trump’s initials.
Despite the fervent enthusiasm among investors, Truth Social faces significant challenges in its business outlook. The company’s financial performance is modest, with only $3.4 million in revenue recorded during the first nine months of 2023, coupled with a substantial net loss of approximately $49 million over the same period. Moreover, Truth Social operates in a highly competitive landscape, contending against well-established giants like Meta Platforms’ Facebook and Elon Musk’s X.
The surge in shares of Digital World Acquisition Corp. (DWAC), which closed at $42.81 on Thursday, is not reflective of underlying fundamentals, according to Kristi Marvin, CEO of SPACInsider.com. Institutional investors are notably absent from trading in DWAC shares, suggesting that the current valuation is driven more by speculative sentiment than fundamental analysis.
The history of DWAC shares mirrors a pattern of volatility, with previous surges followed by significant declines. For instance, DWAC shares reached as high as $97.54 in March 2022 before plummeting by 87% over the subsequent 15 months amid broader market downturns.
Despite past setbacks with Trump-branded ventures, such as Trump Hotels & Casino Resorts, which filed for bankruptcy protection in 2004, enthusiasm among present-day investors remains undeterred. Some users on Truth Social forums express unwavering support for Trump’s latest endeavor, symbolically linking the stock’s performance to patriotic sentiments and trust in Trump’s leadership.
The echoes of past controversies surrounding Trump-branded ventures, including concerns raised by corporate-governance experts and shareholder advocates, have not dissuaded present-day enthusiasts from doubling down on their investment. Amidst references to Trump’s presidency and tongue-in-cheek hashtags like #LetsmakeTrumpaTrillionaire, investors continue to rally behind the stock, driven by a mix of ideology, speculation, and loyalty to the former president.