Why the Hong Kong-based $200 billion AMTD Digital stock is no GameStop

How does a three-year-old Hong Kong fintech company with 50 employees become worth almost four times as much as Goldman Sachs Group Inc. in less than a month? Because stonks go up, duh. AMTD Digital Inc. has risen 14,000% since listing in New York, giving it a market value of more than $470 billion at one point this week and earning comparisons with the poster child of meme stocks, GameStop Corp. AMTD is a very different phenomenon, though.
 

It’s worth pausing for a minute to appreciate just how insane this is. AMTD Digital started trading July 15 after selling shares at $7.80. At the intraday peak of $2,555.30 on Wednesday, the company would have ranked among the 10 most valuable publicly traded enterprises in the world, based on data compiled by Bloomberg — worth more than Facebook owner Meta Platforms Inc., digital payments behemoth Visa Inc., or the world’s biggest bank, JPMorgan Chase & Co. In the most recent year for which it has reported results, AMTD Digital had $25 million of revenue.

The stock fell 34% on Wednesday, settling back to a more reasonable market cap of $203.5 billion. At that $1,100 closing level (a mere 141 times the IPO price), the company was still trading on a price-earnings ratio of 3,836 times, which is what investment analysts sometimes like to call “richly valued.” The shares had a similar drop of 36% as recently as July 25, only to rise 25-fold afterwards. Still, the party may actually be over this time: AMTD Digital fell a further 27% in Thursday trading to close at $800.

The price action, then, is GameStop on steroids. AMTD Digital also meets the meme stock criteria of a little-known name that has soared to unimaginable heights for no apparent reason, other than the fact that retail speculators have taken a fancy to it. In fact, that last part is what is missing in this affair. Quite simply, there is no discernible sign of the trader frenzy that accompanied earlier episodes. Peruse the AMTD Digital thread on Reddit’s WallStreetBets forum, epicenter of the GameStop saga, and you see a sea of skepticism. The words “pump and dump” crop up repeatedly. There are more boosters in evidence on Stocktwits, though even there the cynics have a clear edge (based on Bloomberg Opinion’s unscientific survey).

Trading data back up that impression. The height of the GameStop fever, early last year, was accompanied by a surge in volume. On Jan. 22, 2021, for example, when the price rose 51%, the number of shares changing hands totaled 788.6 million. That’s more than three times the stock available for trading, known as the float. By comparison, AMTD Digital’s volume peaked at 2.4 million shares on July 28 — less than 12% of the outstanding listed total. 

When the float is limited, relatively small amounts of buying and selling can have an exaggerated effect on the price. Public shareholders were projected to hold only 8.6% of AMD Digital post-IPO, with parent AMTD Idea Group owning 88.7%, according to the prospectus. The underwriters, led by the group’s own AMTD Global Markets Ltd., were also given a so-called greenshoe option to buy a further 2.4 million shares at the IPO price. 

Still, even a paucity of shares available for trading doesn’t explain why investors would continue to buy when the stock is already at such nosebleed valuations. Admittedly, companies are valued based not on what they are now, but on what they may become. Is there a fundamental story that can explain AMTD Digital’s parabolic rise? In a word: no. Not unless the company is sitting on the next iPhone or the world’s largest undiscovered gold deposit. But we should at least consider the possibility. AMTD Digital’s mission, stated at the opening of its prospectus, is:

“...to act as a fusion reactor for the best entrepreneurs and innovative ideas, fusing synergistically all elements within the AMTD SpiderNet ecosystem using digital means, harnessing and magnifying the power from each partner to create a force with meaningful and influential social, technological, and economic impact.”

OK, that didn’t help. More intelligibly, the company is part of a consortium seeking a digital banking license in Singapore, and will provide services to a Hong Kong virtual bank started by its parent and mobile-phone maker Xiaomi Corp. What of the people behind the company? AMTD Group appears to have some well-connected backers, having been created in 2003 with support from Li Ka-shing’s CK Group (which said Thursday that it’s selling its remaining stake of less than 4%). The key name behind AMTD Digital is ex-UBS Group AG banker Calvin Choi, who’s currently fighting an industry ban in Hong Kong for failing to disclose conflicts of interest, Bloomberg News reported this week.

But even the magic touch of Li, Hong Kong’s second-richest man and a fabled investor, can’t create $400 billion of value out of thin air. AMTD Digital’s mysterious ascent probably has more prosaic origins. Could mistaken identity even have played a part? AMTD Digital has an interesting stock ticker — HKD, better known as the abbreviation for the Hong Kong dollar. Meanwhile, the ticker of AMTD Idea is AMTD — curiously close to AMD, for Advanced Micro Devices Inc., a $158 billion company with a far bigger public float that has rallied 33% since the start of July. AMTD and AMD both appeared in a Bloomberg list Wednesday of the most-mentioned companies in Stocktwits.

If this all sounds far-fetched, consider that such things have happened, and more often than you might think. In one famous case, Zoom Technologies Inc., a maker of mobile-phone components, soared 70,000% after investors (probably) confused it with Zoom Video Communications Inc. Signal Advance Inc., a medical device provider, surged almost 10-fold in one day after buyers appeared to mix it up with a mobile messaging app that was recommended by Elon Musk. And Clubhouse Media Group Inc., a marketing and media firm, jumped more than 1,000% during a brief flurry of enthusiasm for an eponymous chat app.

It’s not too much of a stretch to imagine that one misplaced trade in an illiquid stock could cause an exaggerated price spike, which retail investors notice and take as a signal to jump in, presuming there will always be a “greater fool” ready to buy at a higher price. That would mean there was nothing behind the AMTD Digital rally at all. Then again, it would be in good company. Perhaps it’s a meme stock after all.