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Shares of GameStop and cinema operator AMC Entertainment rallied to their highest levels in months on Wednesday, with some market-watchers saying the recent surge was forcing bearish investors to unwind their bets against the video game retailer.

GameStop shares surged 15.8% to $242.56, around its highest level since mid-March, while AMC shares shot up 19.2% to $19.56, the highest since Jan. 27. CFRA on Wednesday raised its price target for AMC shares to $18 from $2.50.

Shares of GameStop and other companies popular on forums such as Reddit's WallStreetBets have been climbing in recent weeks and the rally accelerated on Tuesday. GameStop is now 70% above its closing low for May, while AMC has risen 95% in the month-to-date.

GameStop's big gains have caused some bearish investors to retreat, forced to buy shares to cover their short-sale loans, said Ihor Dusaniwsky, managing director of predictive analytics at S3.

"We have started to see some short covering in GME as mark-to-market losses mount on the short side," Dusaniwsky said in an email on Wednesday.

Around 958,000 shares of GameStop, worth $201 million, were bought to cover short sales over the last week, S3 data showed. Roughly 11.55 million shares of GameStop, or 20.3% of its float, are currently sold short, Dusaniwsky said.

Short-sellers in GameStop are down $6.7 billion in year-to-date mark-to-market losses, including $339 million from Tuesday's more than 16% gain and about $383 million due to Wednesday's move, S3 data showed.

A short squeeze helped send GameStop shares increase by more than 1,600% in January to a record high of $483. The stock pared most of those gains in the following month, only to bounce again in March.

Some analysts also pointed to speculation that GameStop may be building a nonfungible token (NFT) platform. Website nft.gamestop.com advertised positions for engineers, designers and other jobs. GameStop did not provide further details.

"If you own a stock and you want it to keep going up you need reasons," said Telsey Advisory Group analyst Joseph Feldman, who has a $30 price target on GameStop and an "underperform" rating. "This is retail investors trying to convince themselves to buy more of the stock."

About 20.6% of AMC shares are sold short, according to Dusaniwsky who notes that even as the shares have been rallying, short-sellers have been adding to their exposure, selling 1.18 million shares short over the last week.

With the rally in AMC shares, now up 822% for the year-to-date, shorts are down $1.37 billion in year-to-date mark-to-market losses, including $290 million losses from Wednesday's rally, S3 data showed.

Riley Securities analyst Eric Wold downgraded his AMC rating to "neutral" from "buy" on Wednesday after the stock surpassed the brokerage's recently increased price target of $16.

However, retail investor enthusiasm for AMC shares "likely helped to take AMC to a place of surviving the pandemic vs. facing liquidation scenario," he said, referring to capital the company has been able to raise in recent months.

"I still look at the fundamentals, but there's going to be other drivers now that may move stocks beyond fundamentals," Wold said.