Trump loses $1.3 billion in Truth Social stock drop—is this a red flag for his 2024 campaign?

After a five-week surge that seemed to defy any connection to the company’s actual performance, Trump Media & Technology Group (TMTG)—owner of Truth Social—saw its stock plunge by 22.3% on Wednesday. This steep drop marks TMTG’s worst single-day loss since going public in March, narrowly topping the 21.5% drop it saw on April 1.

At Tuesday’s close, Trump’s majority stake was valued at roughly $5.9 billion. By the end of trading on Wednesday, that value tumbled to $4.6 billion, slashing $1.3 billion from Trump’s net worth in a matter of hours.

What’s Behind the Sudden Setback?

The cause behind TMTG’s sharp reversal remains unclear. The company hasn’t released any major updates that would justify the plunge, though many traders suggest the selloff was driven by technical factors and fading momentum. Truth Social’s stock has been extraordinarily volatile, largely acting as a gauge of Wall Street’s confidence in Trump’s electoral chances.

Until Wednesday, TMTG’s stock had surged relentlessly upward, quadrupling its value between September 23 and Tuesday’s close. This rally brought the company’s market cap to $10.3 billion, briefly outpacing the implied value of Elon Musk’s platform, X (formerly Twitter), despite X having roughly 70 million monthly active users in the U.S.—a hundred times Truth Social’s 698,000.

“Head Scratcher” Valuation and Meme Stock Hype

For a company that has only generated $1.6 million in revenue this year, TMTG’s valuation has baffled analysts. Comparatively, Paramount Global, a major media conglomerate valued lower than TMTG this week, has already brought in over $14 billion in revenue this year.

Dan Ives, senior equity analyst at Wedbush Securities, noted, “Fundamentally the valuation is a head-scratcher, but we’ve seen other meme stocks like AMC and GameStop follow similar paths in recent years. With the election approaching, this stock has become a litmus test for some investors betting on the White House race.”

High Risk, High Reward—and Higher Costs to Short

Matthew Tuttle, CEO of Tuttle Capital Management, attributed Wednesday’s nosedive to the stock’s failure to break through key resistance levels. He explained, “It’s the way the game is played on these stocks. Smart traders know when to cash out, leaving less experienced investors holding the bag.”

Tuttle also highlighted the costly process of borrowing shares to short TMTG, describing the “completely insane” costs that make shorting the stock nearly impossible.

Despite Wednesday’s setback, the stock remains on the radar for risk-hungry investors, especially with the election just days away.