SpaceX faces nearly $100 billion share unlock as Wall Street looks past the supply surge
Key Takeaways
- •Nearly a billion SpaceX shares held by early investors and employees will exit lockup on Thursday, creating about $100 billion in potential new supply.
- •SpaceX was added to four major index providers soon after listing, which forced passive funds to buy shares and helped offset the lockup-related selling pressure.
- •JPMorgan estimated that Nasdaq inclusion alone shifted about $4 billion of SpaceX stock into passive accounts.
- •Elon Musk told investors on Tuesday that SpaceX could reach a $100 billion revenue run rate by the end of the year.
- •SpaceX stock fell 9% on Wednesday and has lost about half its value since the IPO, even as JPMorgan raised its price target to $240.
A SpaceX rocket crashed into the moon at 2 a.m. Wednesday, leaving a massive crater and another piece of “space junk” on its surface. But that will be only the second-biggest dump of SpaceX’s week.
On Thursday, nearly a billion shares of SpaceX, held by early employees and pre-IPO investors, will finally break free from their lockups. At current prices, the shares are worth around $100 billion and represent a supply shock larger than the company’s IPO itself. Analysts worry the event could weigh on the stock, although Morgan Stanley has framed it as an opportunity “to gain exposure to a potential generational compounder.” SpaceX, however, reduced the pressure by quietly lining up buyers before the lockup clock began running.
The natural pressure
Every IPO eventually reaches this stage, said Gil Luria, head of technology research at D.A. Davidson. Early employees may believe deeply in the company, but after spending decades with most of their wealth concentrated in a single stock, they may want to diversify and buy a house, for example.
That transfer from private-company insiders to public-market investors is the “natural course of business,” Luria said, but it also places downward pressure on the share price as new supply comes into the market. For a company whose valuation now sits at the center of both retail and institutional attention, the question is less whether some shareholders will sell than how much new supply the market can absorb at once.
The bailout
Within 25 days of listing, four index providers — CRSP, FTSE Russell, MSCI, and Nasdaq — added the stock, forcing passive funds inside millions of 401(k)s to buy it. It is not clear how much SpaceX stock passive funds absorbed, but JPMorgan estimates that Nasdaq inclusion alone moved $4 billion of SpaceX into passive accounts. Luria called the accelerated path into the indexes “a little bit of a bailout.”
Without that arrangement, he said, SpaceX would have faced the lockup expiration with “the supply from lockups” but none of the demand created by index funds or the arbitrage traders buying ahead of them. Instead, the company secured “very substantial demand from index inclusion” at exactly the same time that “there’s a lot of supply coming.”
Luria said it was “very important” that SpaceX and its bankers negotiated the accelerated path into the indexes before the IPO. The structure effectively spread out the buying and avoided one dramatic surge, giving the lockup expiration a cushion it otherwise would not have had.
The strategy also proved highly lucrative for those who anticipated it. Two trading teams at hedge fund Millennium made about $3.6 billion in June from these so-called index-rebalancing trades.
On Thursday
Luria said he does not expect every employee or early investor to rush for the exits on Thursday. Investment banks, he noted, often favor shareholders they expect to hold for years, and an investor who works hard to gain access to pre-IPO shares and then “behaves badly” could be shut out of future IPOs. He also said it is difficult to imagine more loyal supporters of Elon Musk than the people who spent their careers building the company.
Still, stock-picking is ultimately less about what investors believe today than what they think other investors will believe about the future. Tuesday’s earnings provided Musk with his last chance to present a positive outlook before Thursday’s selling event. He told investors that SpaceX could end the year at a $100 billion revenue run rate.
The report also showed how much of that future now depends on large spending on artificial intelligence — $15 billion in a single quarter — while raising new questions about whether Starlink is beginning to slow. Those details matter because they shape how investors think about the company’s mix of growth drivers as the share count expands and trading gets more crowded.
The stock fell another 9% on Wednesday, extending a difficult summer that has erased half of its value since the IPO. Even so, analysts across Wall Street remained supportive, with JPMorgan raising its price target from $220 to $240.
“You never bet against Elon,” Luria said, calling that line a “truism in the investing community” after years in which investors lost huge sums betting against Tesla.
This story was originally featured on Fortune.com.
