Trump Media & Technology Group’s (DJT) stock has been on a roller coaster ride the past few days, with the NASDAQ halting trading several times yesterday due to extreme volatility. Despite that, the stock has climbed over 45% in the past few days and roughly 250% in the past month, partly due to expectations of a Trump victory in the upcoming election. Despite the company’s financial fundamentals showing a small social media platform reporting a $16 million loss in the second quarter on less than $1 million in revenue, its market value has soared above $10 billion recently. It gave it roughly the same valuation reportedly given to Elon Musk’s X platform, which pulled in over 100x DJT’s revenue in Q2.
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While the stock price run-up has been closely tied to Mr. Trump’s odds in the prediction and betting markets, on the theory that the company could become extremely valuable if Trump secures a win, it’s worth noting that this surge in value could experience a drastic fall post-election regardless of the outcome.
Does DJT’s Valuation Make Sense?
Trump Media & Technology Group is behind the development of Truth Social, a social media platform providing networking services across the United States.
Shares of the company have surged in recent weeks, mirroring Trump’s improving odds in prediction and betting markets and driving the company’s market value up over $10 billion. However, the value does not reflect the fundamentals of its currently small and loss-making social media platform.
Although the company reported a $16 million loss in the second quarter with less than $1 million in revenue, investors believe that Trump’s victory in the election could significantly boost its value.
Yet, in review, that rationale might not make the most sense.
First, if Trump wins, speculators may quickly cash out their investments, causing an immediate drop in the stock. Yet, many believe the company could still be an attractive long-term investment in a potential second Trump administration that would overcome any post-election volatility spike.
This idea presumes that during the Trump administration, the company he currently holds approximately 60% of the shares could become a dominant media player. However, a sitting President’s media company ownership would present conflicts of interest. His recent relationship with Elon Musk suggests he would find a warm reception shifting to using X as a primary platform for his personal daily communications with a larger audience (much like his previous term), perhaps making that a less objectionable option.
Or, Trump may simply start selling his shares. Despite being in a position as President to make many of his legal troubles disappear, he might still need to sell shares to cover legal expenses from multiple ongoing trials. As a majority owner, such a move would put enormous downward pressure on the share price.
Unlike the betting markets, which lean toward a Trump victory, polling suggests the odds are more of a coin flip. He could simply lose the election, and the value of the shares could go to zero.
What About the Short Squeeze?
Another rationale being offered to explain the dramatic rise in the stock share price is an unfolding short squeeze.
A short squeeze is a sudden and drastic increase in a stock’s price, propelled by traders who have previously bet against the stock being forced to rush in and buy. This is caused when short sellers voluntarily decide to cover their short positions or are obligated to do so due to margin calls. As more short sellers buy the stock to cover their positions, the price escalates. This can initiate a domino effect, causing even more short sellers to cover their positions and further boosting the price. A short squeeze is a rapid, self-perpetuating cycle that can theoretically push the stock’s value significantly higher (think: GameStop (GME) meme-stock rally).
While there have been bets against DJT stock, the shorts represent less than 7% of the outstanding float. While that may be enough to maintain the stock’s acceleration for a bit, it’s not likely enough to sustain it for very long (perhaps not even past the election).
Closing Thoughts on DJT
Trump Media & Technology Group’s stock market frenzy has mainly been driven by speculation, fueled by the upcoming election and the potential of a ‘short squeeze.’ Despite its current financial fundamentals, DJT’s market value has scaled astronomical heights, which is likely unsustainable. At this point, investors may want to view DJT as more of a speculative proxy for the election and less of a long-term investment.
