GameStop (GME) stock plummeted nearly 25% Thursday after the video game seller announced that it intends to sell $1.75 billion worth of convertible bonds.

In other words, GameStop is raising cash from investors by issuing debt in the form of convertible senior notes. Investors will convert the notes into GameStop equity before or when they mature in 2032, diluting shares and potentially weighing on the stock's value.

GameStop said it would use the proceeds of the latest convertible bond sale for investments and potential acquisitions. In May, the company announced a $500 million purchase of bitcoin.

Thursday's announcement follows another big debt offering, with the company selling $1.3 billion of convertible bonds in March.

GameStop is a meme stock known for its unprecedented rally in 2021, driven by retail traders in the Reddit group r/wallstreetbets. In March, the company updated its investment policy to add bitcoin as a "treasury reserve asset," holding the cryptocurrency on its balance sheet as part of its corporate treasury.

Smaller, low-growth companies such as GameStop have been following in the footsteps of Michael Saylor's software firm, Strategy (MSTR), using a combination of debt and equity to add bitcoin to their balance sheet in the hopes of replicating its stock price success.

But investors are wary of such bets because bitcoin can be volatile.

"The main risk in running a leveraged 'bitcoin treasury' strategy is that a rapid drop in the price of bitcoin would lead to a possibility of bankruptcy," NYU Stern School of Business professor David Yermack told Yahoo Finance earlier this month.

Indeed, GameStop's announcement of its bitcoin investment in May sent shares down 10% in one day.

GameStop's revenue has fallen every year since 2023 as video gamers opt for digital game purchases rather than visiting its stores. On Tuesday, the company reported first quarter revenue falling 6% from the prior year to $748 million, sending the stock down 5% the following day.

Read more about GameStop's stock moves and today's market action.

Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance