Cramer warns against ‘meme stock mania,’ says to sell GameStop and AMC

CNBC’s Jim Cramer said investors should get out of stocks like GameStop and AMC, both of which saw huge rallies this week triggered by social media.

“When I see meme stock mania taking over again, led by GameStop and AMC, I need to remind you that this is irrational,” he said. “There’s no way these stocks should reach such elevated levels on their own.”

AMC and GameStop soared after “Roaring Kitty,” the man who helped bring on 2021’s enormous GameStop short squeeze, posted online for the first time in about three years. Shares of both companies rallied more than 70% on Monday, and although both finished up on Tuesday, enthusiasm for the stocks has started to wane.

To Cramer, GameStop is overvalued compared to its electronic retail peers. He said Best Buy has a much stronger business than GameStop, even though the two companies have comparable market capitalizations after the latter’s huge run. Cramer pointed out that GameStop’s earnings in 2023 were much lower than Best Buy’s, even though Best Buy’s earnings have been on the decline.

But while GameStop may just be overvalued, AMC’s situation is different, according to Cramer. Even though the movie chain managed to raise $250 million this week as its stock saw huge gains, he said it could run out of money by 2026 when its debt of more than $2 billion becomes due. He called AMC a “dead man walking.”

“You’re catching AMC in the walking phase,” he continued. “Sell it before the dead man phase and you’ll do just fine.”

GameStop and AMC did not respond immediately to requests for comment.

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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Best Buy.