Short sellers, known for borrowing shares to sell them and later buy them back at a lower price for a profit, have locked on their new target, in the form of Elon Musk-led SpaceX, with the latter’s stocks slipping below the IPO price.
As per the information from data and analytics firm Ortex Technologies, shares available with short sellers are sitting on an estimated USD 8.7 billion in paper profit.
Talking about SpaceX’s market dip, from the post-IPO high of USD 225.64, the stock has come down to USD 135, encouraging short sellers further to accelerate their bearish bets on the company.
SpaceX shares have been volatile, experiencing brief bouts of strength before slipping back. For example, on Wednesday (July 15), the stock dropped below its IPO price for the first time before recovering to close just above that level.
“SpaceX has been a rollercoaster for the short sellers, and it has ended up firmly in their favor. Rather than take profits, the bears kept adding the whole way down. Almost half of SpaceX’s tradable shares, about 49% of the free float, are now out on loan. We believe most of that is short-selling,” Ortex co-founder Peter Hillerberg said.
SpaceX’s lofty valuation makes it a target for short sellers skeptical of its rich price tag. However, strong retail and institutional interest in the company’s stocks, apart from Musk’s history of going against short sellers, makes bearish bets against the venture a risky proposition.
Coming back to the weakness in SpaceX shares, it also partially reflects investor concern over debt-funded AI spending.
“The stock’s sizable short position could inject further volatility into the shares, with every dollar of SpaceX shares moving worth more than USD 300 million to the short side,” Ortex said, suggesting hard swings for the stock in the coming days.
By July 16, the stock tumbled 33% from its record close in the immediate days after the IPO raised a record USD 75 billion on June 11. Despite the volatility, SpaceX remains one of Wall Street’s most valuable companies with a market capitalization of roughly USD 1.8 trillion.
While SpaceX’s IPO was the largest in the American markets’ history, it made less than 5% of its shares available for stock market trading, creating a sort of demand-supply mismatch for the investors.
Despite the company facing wild market swings, after registering USD 2.1 trillion on its first day on the Nasdaq, so-called “lockup” restrictions on insiders will lift in coming months, a move that analysts see potentially flooding the market with additional SpaceX shares.
“We think at this level, it’s relatively safe to at least be involved from a trading perspective. We won’t overweight it because they do have the lockup coming,” said Jay Hatfield, CEO of Infrastructure Capital Advisors in New York, while interacting with Reuters.
Despite the selloff, the stock is still valued at 49 times expected revenue, which makes it one of Wall Street’s priciest by that measure. By comparison, Tesla recently traded at a revenue multiple of 15.
Bullish analysts and investors attribute SpaceX’s high premium to factors like its profitable Starlink internet service, government rocket launch business, and most importantly, Musk’s track record of commanding investor loyalty.
“Of the 32 analysts with ratings on the stock, 27 recommend buying, while just one recommends selling and four are neutral,” stated LSEG data.
Talking about the easing of “lockup” restrictions, in the first of those relaxations, SpaceX’s rank-and-file employees, along with some early investors, will be free to sell 911.5 million shares on the second trading day after the company’s debut quarterly report.
Those eligible shares are currently worth about USD 123 billion, far outpacing the USD 86 billion worth of shares currently available for trading on the Nasdaq.
As per Reuters’ analysis, an additional 455.8 million shares will be eligible for sale if SpaceX’s stock price stays above USD 175.50 for at least five of the 10 consecutive trading days through the date of the company’s upcoming quarterly report.
“All in all, restrictions lifted through December 8 will increase SpaceX’s float of potentially tradeable shares to 40% of the company, with the remaining 60%, including Musk’s stake, locked up until mid-2027,” the analysis noted.