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(Disclosure: The author owns Trump Media & Technology Group (DJT) shares in his personal investment portfolio.)
Donald Trump's return to the political spotlight ahead of his second inauguration looks set to catapult his fledgling social media platform, Truth Social, and its publicly-traded parent company, Trump Media & Technology Group (DJT), into the realm of meme stock mania, as short sellers pile in anticipating a potential collapse.
As the former president gears up for another term in the White House, his social media habits shift from Twitter to his platform, Truth Social. In a sign of things to come, Trump took to Truth Social this week to announce plans for tariffs on goods from Canada, Mexico, and China, prompting speculation that the site could become his preferred channel for significant policy pronouncements. "Truth Social is the new avenue for announcements," said Deutsche Bank's George Saravelos. "During the first Trump administration, it was Twitter. Market participants must watch the president's new social-media platform now."1
The development could provide a lifeline for Trump Media, which has struggled since its merger with blank-check company Digital World Acquisition Corp. The company reported a staggering $23.7 million loss on just $1 million of revenue over the third quarter, and its advertising sales have been slow to take off. However, if Truth Social becomes the go-to platform for Trump's 87 million followers, the company could see a significant boost in user numbers and potential revenue streams, such as its rumored plans to launch a cryptocurrency platform and payment service called TruthFi.
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Shares in DJT, which have traded as a proxy for a Trump election win rather than based on underlying fundamentals, rallied in the run-up to the election but are down about 15% since then. Over the past five days, the stock has barely shifted, in a sign the market has probably moved on from this particular Trump trade for now.
However, the stock's high short interest could make it a prime target for a short squeeze, as happened with meme stocks like GameStop and AMC last year. According to data from S3 Partners, DJT currently has a short interest of 17.41%, meaning that more than 17% of its shares available for trading are currently sold short. This relatively high level of short interest indicates significant bearish sentiment from short sellers.
If Trump's supporters, energized by his return to power, decide to buy up DJT shares en masse, they could force short sellers to buy back shares to cover their positions, propelling the stock price even higher in a short squeeze. Given Trump's penchant for railing against the establishment, his followers may be motivated to buy DJT shares for potential profits and strike a blow against Wall Street and the institutional investors who have bet against the stock.
The prospect of DJT becoming the latest meme stock darling of the MAGA movement is likely to add even more volatility to an already tumultuous stock as retail investors and short sellers battle it out for control. With Trump's inauguration just around the corner, the stage is set for DJT to become the latest flashpoint in the ongoing culture war between Wall Street and Main Street.
