By Chibuike Oguh
NEW YORK, July 10 (Reuters) - Investors chasing market themes are learning a familiar lesson: a hot investment doesn't necessarily make for a profitable one.
The Roundhill Meme Stock ETF is up about 35% this year, including a 3.5% rise on Thursday, driven by gains in companies including AST Spacemobile, Terawulf and Lumentum Holdings.
The AI craze has fueled both a huge rally in the shares of highly profitable chip companies and a return of speculative trading, featuring the embrace
of leveraged ETFs, wild moves in smaller stocks and the sense that meme stock season is back.
But the fund, with $20 million in assets, remains below its October 2025 launch price, leaving investors who bought at inception underwater despite the 2026 rebound.
The performance gap highlights a principle often overlooked during periods of market euphoria: investment returns can be driven in the short term by fleeting qualities such as popularity and buzz, but the longer you hold an asset, the more factors such as profitability, competitive position and prices paid tend to take precedence.
"If you are looking to invest for the long term, however you define that long term, then you need to really understand the fundamentals of the business and what that business could potentially be worth," said Olga Bitel, chief investment strategist at William Blair Investment Management.
"Just because retail investors participate en masse in these exciting companies and IPOs, doesn't mean you shouldn't do the work and figure out what this thing actually does, where it fits into the ecosystem and whether it can deliver on the promises."
VALUATION MATTERS
Those concerns could apply as well to some of the market's most closely watched companies, including SpaceX and potential future listings by artificial intelligence startups OpenAI and Anthropic.
The companies have captured investor interest through rapid growth and leadership in emerging technologies. But it's unclear that their financial results will match the sky-high expectations any time soon, and history suggests that even good businesses can generate poor returns when lofty expectations feed ultrahigh valuations.
Cisco Systems became the world's most valuable company at the height of the dot-com boom in 2000, as investors bet it would be a primary beneficiary of the internet's expansion. The company succeeded in becoming the dominant player in networking equipment, but investors who bought near the peak waited a quarter century for the stock to reclaim its dot-com-era high.
Anthropic and OpenAI may eventually test investor appetite in much the same way. Both command hefty private-market valuations despite remaining unprofitable. In May, Anthropic raised funds at a valuation of $965 billion, putting it ahead of OpenAI, which was last valued at $852 billion in March.
Anthropic is just closing in on its first quarterly operating profit, as it spends heavily to develop and deploy its AI models. OpenAI also spent more than it made in the first quarter of 2026.
MODELING THE MEME STOCKS
High expectations aren't the main problem for the meme stocks, which by definition come out of nowhere to catch investors' fancy at times when markets are setting new highs and momentum - the practice of buying assets when they go up and selling when they fall - is the most prominent dynamic. But the memes and the mega-IPOs can be linked by a prevailing bull-market belief that the worst mistake you can make is to be on the sidelines.
The Meme Stock ETF closed at $8.41 on Thursday, putting those who bought at launch down about 15%. By contrast, the benchmark S&P 500 and the Nasdaq have each gained about 12% in the same period.
The fund's structure reflects that volatility. Its portfolio turns over nearly five times a year — among the highest rates on Wall Street — while almost 60% of assets are concentrated in its 10 largest holdings. Such holdings include fuel cell energy developer Bloom Energy, fiber-optic maker Applied Optoelectronics and Australia-based data center company IREN Limited.
Holdings are selected largely on measures of implied volatility and retail-trading interest, effectively making the portfolio a bet on investor sentiment.
"The MEME ETF is designed to provide investors exposure to stocks with the potential for meme-like behavior, and that comes with volatility in both directions," Dave Mazza, Roundhill Investments CEO, said in a statement. "The fund’s inception coincided with the peak of the last retail cycle, which speaks to timing rather than to whether these stocks can deliver strong moves on the upside, as we have seen this year."
Markets have repeatedly shown that high expectations can become a burden. Investors who buy at peaks of optimism often find that even strong operating performance is not enough to support elevated share prices.
"The retail army of traders certainly helps trends happen, but there's obviously no free lunch in investing," said Will McGough, chief investment officer at Prime Capital Financial.
(Reporting by Chibuike Oguh in New York, editing by Colin Barr and Lincoln Feast.)
