Skyrocketing Stocks - Smart Investment or Risky Gamble?

Skyrocketing stocks can be tempting, but are they a smart investment or a risky gamble? Learn how to spot real opportunities and avoid costly mistakes.

Apr 01 2025

If you’ve been in the stock market for any length of time, you’ve likely experienced this moment: A stock suddenly skyrockets by double or even triple digits in a single day, headlines are buzzing, and you can’t shake that thought - should I buy now? Am I missing out on the next big thing? What if this is just the beginning of a massive rally?

The recent case of Newsmax, which surged 14x in just two days after its IPO, is a perfect example. But before you rush in, pause for a moment—is jumping on a skyrocketing stock a smart investment or a dangerous gamble?

The simple truth is that no one truly knows the answer. Not your financial advisor, not the experts on TV, and not even the executives running the company. If anyone had a foolproof way to predict these moves, we’d all be millionaires. However, there are a few fundamental principles you should understand before risking your hard-earned money on stocks that appear to be on an unstoppable rise.

Investing vs. Gambling

Every public company has an intrinsic value - the so-called "fair value" - which is based on its assets, revenue, earnings, cash flow, and future potential. Analysts spend countless hours trying to calculate this fair value using complex models. But when a stock jumps 700% in a single day, there is no way the company’s true economic value increased at the same rate overnight.

A company launches its IPO at a price carefully determined through due diligence and financial modeling. Just two days later, it’s worth 14 times more - does that make sense? Did the company’s business, technology, or market position change overnight? In most cases, the answer is no. The stock becomes detached from its real value and starts trading based on hype, speculation, and, in some cases, pure euphoria.

At this point, you’re no longer investing - you’re gambling. Buying a stock at an inflated price isn’t about fundamental value, but rather hoping someone else will pay an even higher price later - a concept known as the Greater Fool Theory. Yes, some people do make money this way. But just like a casino, for every winner, there are many more who lose big. Some end up wiping out their savings, falling into debt, or even going bankrupt.

One of the most famous examples of a skyrocketing stock followed by a crash is GameStop (GME) in 2021. The video game retailer’s stock surged from around $20 to over $480 in just weeks—a staggering 2,000% gain—driven by a coordinated buying frenzy on Reddit. But many traders who joined the rally too late lost huge amounts when the price collapsed. Similar hype-driven surges happened with AMC, Bed Bath & Beyond, and other “meme stocks”—most of which later crashed hard.

A more recent case is Trump Media & Technology Group (DJT), the parent company of Truth Social. After merging with a SPAC, the stock soared more than 400% within weeks. But the company’s financials showed tiny revenue (less than $1 million per quarter) and massive losses. Despite this, its market cap hit $8 billion, far exceeding its real economic worth. There are countless similar stories—stocks that explode due to hype, only to come crashing down once reality sets in.

But What About Stocks That Keep Skyrocketing?

It’s true - some companies that experienced massive surges continued to thrive. Amazon had periods of explosive growth but ultimately became one of the most valuable companies in the world. Tesla soared over 700% in 2020, and despite volatility, it’s still worth far more than what analysts once thought possible. The key difference? These companies had strong fundamentals—they built successful businesses that justified their rising stock prices over time.

So, Should You Invest in a Skyrocketing Stock?

You’re staring at a stock that just won’t stop rising. You’ve run out of patience. You feel like you have to buy it now.

If you’re going to take the plunge, at least follow these principles. Only invest what you can afford to lose. Treat this like a bet, not an investment. Assume you might lose 100% of your money - if you're not okay with that, don’t do it. Recognize that you’re gambling, not investing. Buying a stock at an irrational price isn’t investing - it’s speculation.

Understand the risk and don’t fool yourself into thinking it’s a safe move. Enter gradually, not all at once. Instead of throwing all your money in at once, consider scaling in slowly. This reduces the risk of buying at the peak right before a crash.

Set clear exit points for both wins and losses. Decide in advance at what price you’ll sell - both to take profits and to cut losses. This helps you avoid emotional decisions in the heat of the moment. Ask yourself why the stock is skyrocketing.

Is it because the company is truly growing, or is it just hype? Is it being fueled by political trends, retail investor frenzy, or social media buzz? If the only reason the stock is up is that it's already up, you might be buying into a bubble.

Final Thoughts

nvesting in stocks should be based on research, analysis, and long-term growth potential - not just on fear of missing out (FOMO). Does that mean you should never buy a skyrocketing stock? Not necessarily. The thrill of market speculation can be fun - but just make sure you’re going in with your eyes wide open.

If you see a stock soaring and can’t explain why—or the only reason for its rise is momentum itself - think twice before jumping in. Because in the stock market, as in life, if something looks too good to be true, it probably is.

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Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.