GameStop Returns to Growth, Don’t Expect Another Meme Spike

Key Points

• GameStop's Q2 results helped the market to bottom, but aren't enough to drive a sustainable rally.
• Q2 strengths may not carry into upcoming quarters; the core business remains weak.
• Short-sellers and the issuance of warrants will help cap gains in 2025.

GameStop NYSE: GME is proving the naysayers wrong and returning to growth, but investors and traders should not expect this stock to spike like it has in the past. The company is on track to issue a significant number of warrants that put a cap on the market, and that is only one reason to be wary.

The strike price will be $32, and the warrants will equal 10% of the float, which presents a significant overhang for the market. The takeaway is that GameStop may be shifting from meme-stock quality to something else, but it hasn’t completed the shift, and there are few fundamental reasons to own it. 

Short sellers are another reason investors and traders should be wary. Although short interest is down from its peaks during the height of meme mania, short sellers have been piling into GME in 2025, pushing their interest to 15% of the float.

With the warrants set to be issued, they will likely use the $32 level as a target for entry and create an additional headwind for this market.  

GameStop Outperforms in Q2, But Can It Continue?

GameStop had a solid quarter relative to the analysts' forecasts reported by MarketBeat. The company grew its revenue by 21.8% $972.2 million, outpacing the consensus by 1800 basis points on robust hardware and collectibles performance. The bad news is that revenue is down in the two-year stack, still trending near long-term lows. 

Segmentally, the hardware segment produced growth for the first time in three years, advancing by 31% on sales of new units, offset by a decline in software. Collectibles, which include the budding trading card business, grew by 63% and may continue to produce strength moving forward.

The risk is that strength in hardware sales will not persist, and collectibles revenue will be insufficient to offset it. As of the quarter's end, collectibles were only 25% of the business. 

Margin is another area of strength. The company managed to control costs and achieve favorable selling prices, reversing last year’s losses. The net result is $0.25 in adjusted earnings and renewed hope that this retail company can effect its turnaround. 

GameStop Investors Are Betting on Its Cash Pile

The factors keeping GameStop investors interested are its balance sheet and cash pile. The company’s capital-raising efforts resulted in a significant cash build, up more than 100% since last year, leaving the total above $9 billion, including the Bitcoin holdings.

At this level, the company’s assets and equity are rising despite declines in receivables and inventory and a spike in debt. The bad news is that the share count is up by 41% year over year, more than offsetting the equity gains, and the company’s future is still in serious doubt. 

Among the factors that favor a rising GameStop share price is the institutional activity. The institutions own a small, 30% stake as a group, but the activity in 2025 is bullish and ramping higher sequentially. This is a tailwind for the action that can lift the market over time. The question is how high the stock can get and how long they will stay interested. 

GME’s Price Action Is Range Bound in 2025

GameStop’s price action advanced by 5% following the Q2 release, confirming support at the bottom of its trading range. The market will likely move higher from here, but the move may not be quick or without volatility.

Significant resistance targets at $26.25 and $30 will trigger selling and volatility, potentially capping gains. In the long term, this stock is unlikely to move above the $35 level if it gets that high without a significant and sustainable change in revenue and earnings.