Can Trump fans make Digital World Acquisition the next GameStop?

Mark Wallheiser/Getty Images News

• Digital World Acquisition (NASDAQ:DWAC) +140% is soaring on just the idea of a Donald Trump media empire and his ardent supporters could be enough to kick the SPAC into meme territory.
• DWAC, likely to eventually change its name to Trump Media & Technology Group, will be the home of TRUTH Social where the former president revive his social media presence.
• Interest in the SPAC is shooting up, with searches such as "DWAC stock," "Trump stock," and "Trump social media" and "Trump SPAC" trending.
• Traditional market wisdom would assess Digital World's (DWAC) move as a knee-jerk pop that will settle down as more details become available about the actual business.
• But if the meme stock surge illustrated anything, it's that retail investor excitement can overwhelm fundamentals and valuations.

• Politics over profits: Thanks to their army of retail investors and traders, GameStop (NYSE:GME) and AMC (NYSE:AMC) remain at levels where Wall Street analysts have abandoned their valuation models.
• Roaring Kitty had a thesis on why GME was undervalued, but the January rally was spurred by new investors with a passion that mirrored that of political social media posters.
• It could even be argued the desire to foment a short squeeze was in part political, punishing hedge funds and others considered Wall Street gatekeepers.
• Trump has support from about half the country and that's a lot of potential investors. If the stock is seen as a reflection on Trump's political prospects, growth metrics like revenue and monthly average users cease to matter. Valuation metrics like P/E would matter even less.
• And if a run happens, hedge fund money could chase, leading to further gains.
• What's missing? The main difference between DWAC and meme stocks is the absence of short interest and the possibility of a short squeeze.
• A healthy options market for the SPAC is also missing, although if demand is there, there should be plenty of people willing to write puts and calls.
• Today, there are only a few mentions of DWAC on the WallStreetBets subreddit in the daily discussion thread (where Tesla (NASDAQ:TSLA) gets the most mentions by far post-earnings).
• But the recent SEC analysis of GameStop's (GME) January rise saw limited impact from short covering and the same for a gamma squeeze caused by hedging call writing.
• "Whether driven by a desire to squeeze short sellers and thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop, it was a positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock," the report said.
• PACs for SPACs? Trump's social media platform will have a big advantage over a traditional startup company, not just in its built-in user base but in the ability to reach out through donor lists via e-mail and encourage signups.
• Could that also be used in some way to encourage people to buy the stock?
• Trump has never recoiled from mixing his business with his politics. A fifth of his Save American PAC's operating budget was spent at Trump properties.
• Non-connected PACs couldn't actually invest donations in the SPAC, but there is nothing to stop Trump from celebrating the performance of shares in posts.
• Trump TRUTH and Tesla Twitter: There are surface similarities with Tesla (TSLA), which also has a polarizing and charismatic leader synonymous with the company.
• Tesla bulls championed the stock against a lot of early naysaying (although there are certainly still detractors).
• And Tesla's Twitter (NYSE:TWTR) crowd hasn't shied away from the political sphere.
• Electrek reports that Tesla Twitter tried to cancel President Joe Biden's appointee for a senior NHTSA adviser role for safety, who published a paper, later removed, that was critical of Tesla's Autopilot.
• Based on price targets, Wall Street is on board with the bullish Tesla thesis. But Tesla (TSLA) stole a March on what is now considered the future of the auto industry.
• Right now, there is a question over whether TRUTH Social could stay online given challenges finding and keeping Web hosting.
• Without a game-changing innovation to attract institutional money, DWAC's prospects for lofty returns likely remain with meme forces.
• See the full DWAC presentation on the Trump Media deal.
• Dear Readers: We recognize that politics often intersects with the financial news of the day, so we invite you to click here to join the separate political discussion.