The “Mad Money” host made his comments following a session in which GameStop shares rose almost 16% Wednesday and AMC advanced 19%. The stocks are up 37% and more than 60%, respectively, this week alone as the speculative trading that first took Wall Street by storm in January resumed.
“Anyone shorting AMC or GameStop is out of their mind. … WallStreetBets is too powerful, and trying to bet against them right now is just giving them more ammo,” Cramer said.
Despite some optimism around a potential turnaround spearheaded by Chewy co-founder Ryan Cohen, Cramer contended the video-game retailer GameStop remains way overvalued. AMC — which still faces headwinds from the rise of digital streaming — is also expensive at current levels, Cramer said.
But Cramer said the companies are not trading based on fundamentals, which makes shorting their stocks dangerous as long as they remain beloved by Reddit traders.
Shorting a stock is essentially a bet that it will fall in price. An investor such as a hedge fund borrows shares and then immediately sells them into the market, with the goal of buying them back later at a lower level. Then, the investor returns the borrowed shares, profiting off the price differential.
When the opposite happens and the stock rises in value, a short-seller may seek to minimize losses by purchasing shares at their higher price.
Both GameStop and AMC have over 20% of their float shares sold short, according to data from S3 Partners. That’s compared with an average of 5% short interest in a typical U.S. stock.
“I’ve never seen anything like this: a group of buyers with no sensitivity to price,” Cramer said. “These people don’t have unlimited firepower, but they’ve got enough firepower to engineer a short-squeeze any time a bunch of professionals decide to bet against this thing.”
— CNBC’s Yun Li contributed to this report.
(With inputs from CNBC)