Why Opendoor Technologies Stock (OPEN) Is Skyrocketing Today

Key Points

• Jerome Powell's Jackson Hole speech indicated the Federal Reserve will likely cut interest rates soon.

• Opendoor's performance is particularly tied to interest rates since both its operational costs and customer demand depend heavily on borrowing conditions.

• While Opendoor's stock benefits from meme-stock enthusiasm, there are a lot of challenges for the company that may prove insurmountable.

• 10 stocks we like better than Opendoor Technologies ›

Shares of Opendoor Technologies (NASDAQ: OPEN) are flying higher on Friday, up 24.8% as of 1:15 p.m. ET. The jump comes as the S&P 500 gained 1.4% and the Nasdaq Composite gained 1.7%.

Federal Reserve Chairman Jerome Powell gave a speech this morning that signaled interest rate cuts could be coming. The news sent stocks across the market higher, but the effect was especially large for many riskier stocks like Opendoor's.

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Why Fed rate cuts matter for Opendoor stock

Speaking at the Fed's Jackson Hole symposium, Powell highlighted that the economic picture is mixed with a lot of moving parts complicating the Fed's decision. The Fed chief acknowledged that the economy is showing resilience, but downside risks are increasing. He appeared particularly concerned about tariffs potentially reigniting inflation. Still, he indicated cuts are coming, though he didn't explicitly say so.

Opendoor stock flew higher on the news as more speculative investments like Opendoor tend to do better in low interest rate environments. The effect was even larger for Opendoor, however, because the company's business model is heavily affected by interest rates. Rate cuts could help boost its bottom line.

Image source: Getty Images.

This meme rally could end for Opendoor stock

While the digital real estate disruptor operates in a massive market with genuine innovation potential, its competitive moat remains questionable. The meme-stock rally has been fueled by the idea that AI can unlock the company's true potential. While the idea is interesting, there's no guarantee it will work.

In the meantime, the company is operating in the red, relies heavily on debt, and the real estate market does not look particularly promising at the moment. I would avoid the stock.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.