Could Trump Media Shares Face a Presidential Conflict of Interest?

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As Trump Media & Technology Group Corp. (TMTG) rises in the stock market, primarily driven by Donald Trump’s popularity and the social media platform Truth Social, the company’s stock (traded under the ticker DJT) is gaining a reputation as a “meme stock.” This label is applied to stocks that see substantial price fluctuations based on social trends, support from retail investors, and the company founder’s popularity, rather than solid revenue and profitability. With Trump’s strong political following, this stock has become a popular investment among supporters who buy in based on loyalty rather than traditional financial metrics. However, TMTG’s soaring valuation brings up ethical considerations, especially if Trump secures a second presidential term.

The Nature of Meme Stocks and the DJT Bubble

In the past, stocks like GameStop and AMC, dubbed “meme stocks,” demonstrated how collective retail enthusiasm could create unprecedented price surges. However, the key distinction with meme stocks lies in their tendency to experience sharp declines once enthusiasm fades or financial weaknesses come to light. Investors attracted by the hype often suffer significant losses when the “bubble bursts,” a risk that increases as market factors or diminishing investor interest impact the price. DJT currently trades heavily on hype, social allegiance, and Trump’s influence rather than on substantial revenue growth or company fundamentals.

With minimal revenue, TMTG’s market capitalization has grown rapidly, fueled by its association with Trump rather than concrete business results. For the nine months leading up to late 2024, TMTG reported approximately $3.3 million in revenue, an amount that, in traditional investment terms, would not justify the company’s multi-billion-dollar valuation. This stark contrast between valuation and revenue underscores the stock’s vulnerability; as with all meme stocks, sustainability becomes a pressing question. Should enthusiasm wane, DJT’s value could see a drastic correction, leaving investors who bought in at high prices holding devalued shares.

Potential Presidential Conflict of Interest

If Trump were to assume office again, his majority control over DJT raises questions about conflicts of interest. While U.S. presidents are not required to divest private holdings, previous presidents have done so voluntarily to avoid the appearance of conflicts. A blind trust, for instance, is a traditional method used to separate a president from direct involvement with their assets. In Trump’s case, however, this may prove challenging due to DJT’s connection to his brand and political image. Continued ownership could create ethical complications, particularly if policy decisions appear to benefit his company or if foreign investors are drawn to DJT because of Trump’s presidency.

For investors, the possibility of Trump returning to office could present a unique paradox. On one hand, his position could drive more interest in the stock, causing prices to surge. On the other, the inevitable ethical questions and scrutiny surrounding DJT’s ownership could weigh heavily on its market perception, potentially leading to volatility and risk for shareholders. Regulatory actions or calls for divestment might further complicate the stock’s trajectory, making it a challenging asset for long-term holders to assess.

Trading on Sentiment, Not Fundamentals

One of the clearest indicators that DJT is trading as a meme stock lies in its fundamentals, or rather, the lack of them. For a stock to be valued in the billions typically implies a revenue stream that supports such valuation. However, TMTG’s earnings remain limited, and no robust growth in revenue has been reported. Despite this, DJT’s stock price continues to experience sharp increases, driven by hype, media attention, and political rallies.

The reality is that DJT’s price movements rely heavily on sentiment. This introduces significant risk, as stocks primarily driven by sentiment can be unpredictable and subject to rapid changes. The current trajectory is therefore not based on financial health but on Trump’s influence and visibility. Investors interested in DJT must remain aware of this discrepancy between valuation and revenue, as it highlights a speculative nature where high gains come with equally high risks.

 

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Shorting DJT: An Alternative Approach?

Given the discrepancy between DJT’s revenue and its market price, some investors may consider shorting the stock. Short selling is an investment strategy that allows investors to profit from declines in a stock’s price by borrowing and selling shares with the aim of repurchasing them at a lower price. For a stock like DJT, which some might see as overvalued, shorting could theoretically be profitable, especially if the hype subsides or the company faces regulatory or operational challenges.

However, shorting meme stocks is risky. DJT’s dedicated investor base means the stock could continue to climb, particularly if Trump’s political profile rises. This phenomenon, known as a “short squeeze,” occurs when the stock price rises rapidly, forcing short sellers to cover their positions by buying back shares, further driving up the price. This high volatility makes DJT a challenging stock for traditional short-selling strategies and demands a cautious approach.

DJT as a High-Stakes Investment

DJT stands as a prime example of a meme stock, where political association and investor allegiance take precedence over financial health. The company’s limited revenue base and high valuation suggest that the stock’s current value may not be sustainable long-term, especially if enthusiasm dwindles. Nonetheless, DJT has the potential to rise further, particularly if Trump’s political career remains in the spotlight.

Investors considering DJT must weigh the appeal of its current momentum against the significant risks associated with meme stocks. While DJT could offer short-term gains, it also poses the risk of substantial losses for those who enter late or underestimate the speculative nature of the stock. The ethical implications surrounding Trump’s majority control, especially if he assumes office, add a layer of complexity that could affect the stock’s stability and public perception.