The infamous short squeeze that skyrocketed video game retailer GameStop’s (NYSE:GME) stock price has been remarkably long-lived, but the clock is ticking.

It sent GME stock from $20 to a record high of $480 back in January. After dipping to the $50 mark, the stock has hovered over $100 for the past few months.

However, the short interest in the stock is declining as it continues to shed its value. Its fundamentals are in disarray, and its outlook is even worse, making it a terrible investment.

GameStop has taken advantage of the short squeeze by raising $1.5 billion in cash. Moreover, it has settled its long-term debt and thereby solidified its balance sheet.

Its immediate future is secure, but its long-term position hasn’t changed much. Unless there’s an expectation of another short squeeze, GME stock can’t trade higher on fundamental value.

Its cash balance is nowhere close to its massive $11 billion market cap, and with an incredibly dreary outlook, GME stock offers nothing to investors at this time.

The Rise of Digital Games

GameStop is primarily a video game hardware and software retailer, and a minuscule percentage of its revenues coming from collectibles.

Physical video game sales have been in decline for almost a decade. Back in 2013, roughly 10% of console sales were digital, but in 2020 that number grew to 72%.

Moreover, console developers are incentivized to push for digital downloads. They can effectively sell games from their digital stores directly to the users and easily cut out retailers such as GameStop, keep more profits and offer more discounts to gamers.

This is why Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) have released disc-less versions of their consoles for the first time. These consoles are $100 cheaper than the typical version of the console.

Moreover, console makers provide their users with subscriptions that offer a wide array of services. These include playing online, access to a catalog of old games, discounts and others.

This subscription service tends to cover up most of the cons of owning a digital game. GameStop and other retailers will have had a hard time expanding their revenue base. In time, the console makers might dominate content sales completely, leaving nothing on the plate for retailers.

Uncertainty Ahead

Perhaps an even bigger problem than digital downloads for GameStop is that its market is shrinking. GME has multiple competitors in the market, all of which are trying to offer a better service to their customers.

GameStop has tried to differentiate its service from its peers but has failed to make a meaningful impression. Investor Ryan Cohen talked about how its stores had poor customer service and dusty shelves.

On top of that, it is competing with companies such as Amazon, which have practically written the book on customer service. You can buy the same video games on Amazon (NASDAQ:AMZN) and have them delivered within a day or two, rather than waiting for two to five days with GameStop.

GameStop’s online sales have even less moat than retail as the buying experience is similar between various online platforms.

In the past few years, GameStop has tried launching a subscription service, attempted selling classic games, and promised to change the business.

Now-departing CEO George Sherman laid down his GameStop 2.0 plan to turn stores into a “cultural experience.” However, Cohen’s recent account suggests that nothing much has changed with the company.

Final Word on GME Stock

GME stock has been the top meme stock this year and one that kick-started the retail trading frenzy. However, the hype is now wearing off as the short interest in the stock is at its lowest in months.

GameStop faces multiple challenges in reviving its business and growing its top-line at a healthy pace. Therefore, with a highly uncertain outlook and weak fundamentals, it’s tough to invest in GME stock.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.