To The Moon

Scheduled for Thursday, the first wave of around $101 billion worth of SpaceX (SPCX.US) shares will become eligible for sale by insiders, marking the next major hurdle for investors already reeling from the stock's slide below its IPO price. The event is highly unusual, employing a never-before-seen nine-phase staggered unlocking mechanism, and with the sheer size of this initial tranche, the market is bracing for potential volatility and fresh selling pressure.

Typically, companies set a lockup period, preventing insiders from selling shares for a set time after an IPO. However, SpaceX has adopted a novel approach, breaking its lockup into nine separate phases rather than the conventional single release after 180 days. This design is meant to mitigate the shock of a massive, one-time sell-off. Peter Singlehurst, head of the private company team at Baillie Gifford, which first invested in SpaceX in 2018, commented, "We have never seen an arrangement like this. We have never seen this scale of unlock, and we have never seen a lockup implemented in phases. I would say we are squarely in uncharted territory."

According to the prospectus, up to 911.5 million shares could be released from restrictions on Thursday, potentially more than doubling the number of tradable shares from the current roughly 639 million to as many as 1.55 billion. This massive unlock arrives at a time of intense price swings for SpaceX. Following the release of its first quarterly earnings report, the stock plunged 13% in a single day, nearly erasing all the gains from a previous two-day surge that had added over $250 billion to its market cap. On Wednesday, SpaceX shares fell another 10%+, settling back near $110, a roughly 38% decline from its all-time high on June 16.

Having operated as a private company for over two decades before completing its acquisition of xAI and earlier, Twitter, SpaceX boasts a highly complex shareholder base. This includes a mix of long-term institutional investors, early employees, and private equity backers. Although the current stock price sits well below the $135 IPO price, many early investors still hold significant paper profits, raising concerns that the first unlock could trigger profit-taking. At the same time, bearish bets are piling up. Data from S3 Partners indicates that as of Tuesday's close, approximately 35% of the currently available shares have been sold short. With the stock retreating from its highs, short sellers are sitting on collective paper gains of roughly $5.3 billion.

Despite the near-term pressure, a majority of analysts remain bullish on SpaceX's long-term prospects, pointing to several potential catalysts on the horizon. The highly anticipated 14th launch of the Starship rocket is expected later this month, a project widely seen as foundational to the company's "space data center" strategy. Additionally, the company plans to use its Starlink satellite internet network to directly compete with major U.S. mobile carriers. On the financial front, SpaceX reported quarterly revenue that beat analyst expectations, primarily driven by the Starlink business, which is currently its only profitable segment. However, higher-than-expected AI-related capital expenditures were a key factor in the recent stock pullback. David Wagner, a portfolio manager at Aptus Capital Advisors, noted, "Until the last massive unlock in December, many investors are hesitant to buy SpaceX based on fundamentals alone, because the persistent overhang from these unlocks is always there. Frankly, we are in the same boat."

For long-term investors, the temptation to lock in some gains is also powerful. When xAI merged with SpaceX, the combined entity was valued at about $1.25 trillion, compared to its current market cap of roughly $1.5 trillion. Many investors who held indirect stakes in both SpaceX and xAI through special purpose vehicles will now start receiving shares as the lockup phases begin, giving them the opportunity to sell. Singlehurst from Baillie Gifford remarked that this first unlock could be "the largest single-day increase in the number of free-float shares for a single company in history." "What will happen on the day? Frankly, I don't know either," he added.

In reality, Thursday is just the beginning of a drawn-out process. Analysts at Bernstein describe SpaceX's approach as an "extremely complex" nine-phase schedule, a stark departure from the traditional 180-day lockup. According to regulatory filings, the largest subsequent unlock will not occur until early December, when the number of tradable shares could surge to 5.33 billion. This means the market will have to contend with a persistent overhang for months to come. Notably, anticipating a small initial float and high volatility, some long-term institutions like Baillie Gifford had already trimmed some of their positions before SpaceX went public to reduce risk. Since its listing, SpaceX's market cap has swung wildly, adding nearly $1 trillion in a matter of days before losing about $1.2 trillion. With the unlocking of over $100 billion in shares, Wall Street is bracing for the next wave of turbulence in the storied aerospace and AI company.