Short sellers gain as SpaceX stock slumps. Everyday investors are in the red.

Key Takeaways

• The share of SpaceX stock that’s reportedly been sold short has ballooned to about 32% from less than 7% a month ago.
• The surge in short interest coincides with a stock slump that has weighed on the portfolios of individual investors who own any fund tracking the hugely popular Nasdaq-100 index.

“SpaceX will be worth more than Earth if we achieve our goals,” Elon Musk recently said. Investors think that’s a very big “if.” 

Investors have reportedly shorted about 206 million shares of SpaceX (SPCX), or about 32% of the company’s public float, according to estimates from S3 Partners. The latest estimates are an increase from 185 million shares, or about 29% of float, last week, and just 40 million shares, or less than 7% of tradable stock, a month ago. 

Short interest is rising as SpaceX’s share price falls. The stock soared to record high above $225 in its frenzied first days of trading last month, but it’s mostly been downhill from there. Shares closed below its $135 IPO price for the first time last week in the middle of a seven-day slump. The stock snapped its losing streak on Tuesday amid a broad market rally, but slumped nearly 7% to a record low of about $115 on Wednesday.

Why This Is Important To Investors

SpaceX’s relatively small public float, speculative nature and high profile have all made it a volatile stock since its debut last month. Rising short interest could exacerbate that volatility if a sudden upswing squeezes short sellers. Though, upcoming lock-up expirations could put even more pressure on shares.

Many 401(k)s Have Exposure to SpaceX Stock

The slump has cost Musk his trillionaire status. It’s also been a drag on many everyday investors’ retirement portfolios. Several stock index providers fast-tracked SpaceX’s entry to their indexes.

The stock was added to the Nasdaq-100, one of America’s marquee stock indexes, on July 7, just 15 trading days after its debut. As a result, funds tracking the index, including the Invesco QQQ ETF (QQQ), with more than $450 billion in assets, bought the stock when it was trading around $160. Shares have since declined more than 20%.

The Nasdaq-100 is a popular choice among savers. More than 40% of 401(k) plan participants own a fund tracking the Nasdaq-100, according to a recent survey by Shelton Capital Management, and SpaceX accounts for about 1% of the index.  

Nasdaq’s decision to accommodate SpaceX was controversial. New stocks tend to be volatile, and many experts warned SpaceX’s high profile, small float, and the speculative nature of its business would likely amplify that volatility. Historically, pre-IPO buzz has been a short-term boon and a longer-term headwind to stocks. According to Mark Malek, chief investment officer of Siebert Financial, shares of the 10 largest U.S. IPOs in history have underperformed the S&P 500 by 96 percentage points since their listings. 

Lock-Up Expirations Could Spark More Volatility

There may be more turbulence ahead for unwitting SpaceX investors out there. The company on Tuesday scheduled its first earnings report as a public company for August 4. The print will open the door for company insiders to begin selling shares that have been subject to a post-IPO lock-up period.

Insiders can start selling up to 20% of their locked-up stock, or 911.5 million shares, on August 6. An additional 10%, or 455.8 million shares, will be unlocked if the stock closes at least 30% above its IPO price in five of the 10 trading days leading up to its first report. (That 10 day stretch started Wednesday, and the price to watch is $175.50.)

Despite mounting pessimism among short sellers, there are plenty of SpaceX bulls on Wall Street. Nine of the 10 analysts with current ratings tracked by Visible Alpha rate the stock a buy, and their median price target of $235 implies more than 100% upside. 

For his part, Musk responded to surging short interest on Friday when he wrote in an X post: “The survival probability of firms who maintain a significant short position in SpaceX over time is very low.”

Musk has a history of bitter feuds with short shellers. Tesla (TSLA) was one of the most shorted stocks in history in 2018 when the EV maker was burning through cash and struggling to scale production. Musk accused short sellers of market manipulation and, that August, said he wanted to pay a 20% premium to take Tesla private. “Funding secured,” he infamously tweeted, causing shares to jump. That incident cost Musk $20 million in fines, his Tesla chairmanship, and his unfettered freedom to tweet, but the bears got burned, too. Tesla’s business improved, it turned profitable, and shares rose, culminating in a historic short squeeze in 2020 that reportedly cost hedge funds billions. 

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