SpaceX's wild ride is just getting started
Shares of Elon Musk’s rockets-and-AI firm have surged as much as 67% since they started trading on 12 June and fallen 35% from there
Highlights:
- Jefferies estimates Russell index inclusion could draw $2.68 billion from passive investors
- Options data imply about a 40% chance shares trade below $130 by mid-September
- Some shareholders could sell after first post-IPO earnings if conditions are met
SpaceX's stock extended its wild ride on Tuesday, briefly falling below its first-day opening price before rebounding on an otherwise weak day for the tech sector – sharpening Wall Street's focus on the shifting balance between buyers and sellers of the volatile shares.
Shares of Elon Musk's rockets-and-AI firm have surged as much as 67% since they started trading on 12 June and fallen 35% from there. But those swings don't represent a fundamental shift in investors' views on SpaceX's prospects and valuation, analysts said, given the flood of information that preceded its record $75 billion IPO and the silence that has followed.
Keep updated, follow The Business Standard's Google news channel
That could change in coming days. SpaceX's addition to major indexes and the start of research coverage by major investment banks is likely to fuel more buying, while the expiration of share lock-ups could drive potential selling, analysts said.
The company's high valuation -- it currently trades at a price-to-revenue ratio of about 141 times 2025 revenue -- has not deterred buyers, but options market activity has grown more defensive, with more investors betting on share declines after an initial bout of bullish bets.
"The options activity has gotten more balanced. It's not as completely euphoric as it was day one," said Steve Sosnick, chief strategist at Interactive Brokers.
Some see the 12 June opening price of $150 and the $135 IPO price as potential pain points.
Around 5% to 7% of the stock has been sold short, estimated analytics firm S3 Partners, referencing the practice of borrowing and selling shares with the intent of repurchasing them at a lower price and pocketing the difference.
On Tuesday, shares were up 6% to $164.30 after earlier falling as low as $147.11 amid a broader Nasdaq sell-off.
SpaceX's decline in recent days has accompanied the biggest tech pullback in weeks, with Nvidia dropping back below $5 trillion in market value on Tuesday and hundreds of billions of dollars being knocked off the Nasdaq composite index.
The stock's ups and downs are "not totally unexpected, as volatility is typical in the first weeks of trading after an IPO," said JJ Kinahan, head of retail expansion and alternative investment products at Cboe Global Markets.
He said investor focus will be on the post-IPO normalisation and any new company-specific developments, as well as macroeconomic data, including inflation data that could signal future Fed policy moves.
Red-letter days
A series of SpaceX events will drive trading in coming days and weeks. Investors said some of the developments are likely to be bullish, such as index additions, but that it's impossible to say how any of them will affect trading, particularly in a hot market such as for AI-related shares.
SpaceX is expected to be added to Russell indexes as part of FTSE Russell's regular index reconstitution on Friday. That could result in $2.68 billion in inflows from passive investors.
29 June: Scheduled 13th flight of SpaceX Starship.
6 July: Expected addition to the Nasdaq 100 index.
7 July: End of quiet period that limits publication of research by investment banks involved in the IPO.
SpaceX's inclusion in ETFs like the Invesco QQQ Trust and iShares Russell 1000 ETF, which are tied to the Nasdaq and Russell indexes.
Investors' initial rush to get exposure to SpaceX through bullish options bets has given way to more balanced action in that market. Options data show traders ascribing an about 40% probability to the stock trading below $130 by mid-September, according to Susquehanna Financial Group strategist Christopher Jacobson.
While in aggregate SpaceX options still show a slight bullish bias, contracts expiring July through September with strike prices ranging from $125 to $190 show nearly two puts for each open call, according to LSEG data, pointing to defensive positioning. Calls convey the right to buy shares at a fixed price in the future and puts offer the right to sell them.
"I don't think this is unusual given the performance of hot IPOs in the immediate term post-offering and the need for hedges surrounding unlock periods," said Ophir Gottlieb, chief executive of Capital Market Laboratories, who has been invested in SpaceX since a funding round in 2022.
While most newly public companies impose broad restrictions on insider sales for roughly six months after listing, SpaceX has created exceptions for some participants and plans a phased release of restricted shares tied partly to company performance and stock price targets. Some shareholders could begin selling stock shortly after SpaceX reports its first quarterly earnings, provided specified conditions are met.
