Trump’s stock surges as traders predict an election victory

By CNN Newsource

Published October 28, 2024 2:00 AM

By Matt Egan, CNN

New York (CNN) — Trump Media & Technology Group is losing money, generating very little revenue and its main product Truth Social remains a relatively small player in social media.

Yet Wall Street is valuing former President Donald Trump’s social media company at $9 billion, a price tag that has more than tripled in the span of just five weeks.

Since plunging to record lows on September 23, Trump Media’s share price has skyrocketed. Market veterans say this monster comeback is being almost entirely driven by bets that Trump will win the White House.

Trump Media is not a normal stock. It’s basically a meme stock, meaning that it trades not on fundamentals but on hype and momentum linked to the Republican nominee’s political fortunes. The stock is essentially a proxy for how traders think the election will turn out.

“I’ve never seen anything quite like this. This company’s value is almost entirely based on the outcome of an election,” Gene Munster, managing partner and co-founder of venture capital firm Deepwater Asset Management, told CNN in a phone interview.

After surging 32% last week, Trump Media climbed another 16% on Monday morning.

‘A binary outcome’

Munster said there is “nothing” about Trump Media’s fundamentals that can justify its $9 billion market value.

The company’s second-quarter revenue amounted to just $837,000, a tiny amount normally associated with a company valued in the millions, not billions, of dollars.

And yet Trump Media’s share price has surged more than 200% since September 23.

“It sounds crazy but that move, to me, is justified because it’s a binary outcome,” Munster said. “It’s pretty straightforward: If Trump wins the election, it’s going to be worth more than the $8 billion it’s currently worth. And if he loses, it will be worth significantly less.”

In a sign of how closely traders are following the election, trading app Robinhood on Monday launched presidential election event contracts that let customers bet on which candidate they think will win the White House.

Trump is the dominant shareholder in the company that bears his name. His stake of 114.75 million shares is now worth about $5 billion, up from $1.4 billion on September 23. Of course, those are paper gains and Trump would have a hard time selling shares without tanking the stock price.

The fact that Trump has pledged not to sell his shares — and that he has not disclosed any stock sales — has helped boost the share price.

‘Crazy’ valuation

George Kailas, CEO of Prospero.ai, a research platform that helps retail traders get better market intelligence, told CNN that Trump Media is trading like a classic meme stock.

“Social sentiment takes off, hitting a fever pitch, raising the value of the stock and then people keep betting on it more and more,” Kailas said.

But Kailas said the massive rally in Trump Media means it is now trading at more than 1,600 times its enterprise value (a measure of a company’s total value, including debt and cash). He described that valuation ratio as “crazy,” noting that other hot stocks are trading at just a fraction of that.

“We’re seeing people wagering with their hearts,” Kailas said. “There’s not a good story about how they are going to justify that valuation.”

Polls indicate the race for the White House remains incredibly close.

Trump Media’s share price saw a sharp decline in July after President Joe Biden ended his reelection bid. Polls at the time suggested Trump faced an uphill battle to defeat Democratic nominee Vice President Kamala Harris. But now Trump and Harris are locked in a dead heat in the latest national polls.

“There is a case to be made that if Trump wins the election, the company’s prospects increase dramatically,” said Steve Sosnick, chief strategist at Interactive Brokers.

If Trump returns to the White House, Sosnick said Truth Social could become an important platform for presidential communications.

“The market is saying this will be a proprietary platform for the most influential person in the world — and there is some value to that that they will find ways to monetize,” said Munster.

For now, Truth Social remains relatively small when compared with major social networks.

Although Truth Social is bigger than some right-wing social networks like Gettr, Facebook has 200 times more monthly active users on iOS and Android in the United States, according to Similarweb data shared with CNN.

The user base of X, the social media network formerly known as Twitter, is more than 100 times bigger than Truth Social’s. Even Threads has 20 times more users than Truth Social, according to Similarweb.

More turbulence ahead

Trump Media’s already-volatile share price could experience more turbulence in the days and weeks ahead.

Munster anticipates Trump Media could keep rallying into the election and then perhaps retreat a bit if he wins in a classic “buy-on-the rumor, sell-on-the-news” type move.

Analysts say a Trump loss could set off a steep selloff.

“It will free fall,” said Munster. “If he loses, I suspect it’s a billion-dollar company.”

Sosnick agrees that Trump Media would give back most of its gains if the election doesn’t go in Trump’s favor.

“If he’s not elected, what are you left with? A company that’s a few years old, modest revenue and essentially no profits,” he said. “If this were called Joe’s Media Company, we wouldn’t even be talking about it and it wouldn’t have a value anywhere close to this. The value is completely tied to the former president.”