SpaceX Short Sellers Book Billions as Elon Musk Tells Them Their ‘Survival Probability’ Is ‘Very Low’

Short sellers betting against SpaceX have amassed about $4 billion (£3 billion) in paper profits after shares in Elon Musk’s rocket and satellite company tumbled below their record-breaking initial public offering price, making it one of Wall Street’s most heavily shorted stocks barely a month after its market debut.

Data from S3 Partners, a US financial analytics firm that tracks short-selling activity, shows about 30% of the roughly 640 million publicly tradable SpaceX shares have been borrowed by investors betting the stock will decline further.

Shares have dropped about 40% from an intraday high of $225 (£168) in June to below their $135 (£101) IPO price as investors reassess the company’s nearly $2 trillion (£1.5 trillion) valuation ahead of a major post-listing share unlock expected next month.

Musk responded to the growing bearish sentiment on Saturday, warning investors maintaining large short positions against SpaceX faced a bleak long-term outlook.

Musk Hits Back At SpaceX Short Sellers

Musk addressed the surge in short interest in a post on X.

‘The survival probability of firms who maintain a significant short position in SpaceX over time is very low,’ he wrote.

His remarks came after SpaceX shares slipped below their IPO price for the first time since listing in June, wiping out the sharp gains that followed what became the largest public offering in history.

According to S3 Partners, short interest has climbed rapidly in recent days as more investors position for further declines.

The firm estimates about 30% of the company’s freely tradable shares are now held by short sellers, reflecting growing scepticism over whether SpaceX’s valuation can be sustained after its explosive market debut.

The sell-off has also coincided with a broader retreat in highly valued technology companies as investors reassess stocks that led the artificial intelligence-driven rally.

Markets Brace For Share Flood And Rising Risk

Investors are also preparing for a significant increase in the number of SpaceX shares available for trading.

About 900 million additional shares could become eligible for sale as early as August when lock-up restrictions affecting pre-IPO investors begin to expire.

Such lock-up expiries often attract close attention because they allow early investors, employees and insiders to sell previously restricted holdings, potentially increasing the supply of shares entering the market.

While larger share availability does not necessarily result in lower prices, analysts have warned that the volume expected to reach the market could place additional pressure on the stock unless investor demand strengthens.

Caution has also spread beyond the equity market.

SpaceX raised $25 billion (£18.7 billion) through a bond offering shortly after receiving investment-grade credit ratings from major rating agencies. Since then, yields on some of those bonds have climbed, signalling investors are demanding higher returns to hold the company’s debt.

Bloomberg data also shows the cost of insuring SpaceX’s debt through credit default swaps, financial contracts that protect investors against a borrower defaulting on its obligations, has risen since late June.

Higher bond yields and more expensive default protection generally indicate investors perceive greater risk than they did immediately after the company’s record-breaking market debut.

SpaceX’s Long-Term Ambitions Face Market Test

Despite the recent sell-off, SpaceX remains a leading commercial launch provider and the operator of Starlink, its rapidly expanding satellite broadband network.

The company is also developing Starship, the fully reusable launch vehicle central to NASA, the US space agency, and its Artemis programme, as well as Musk’s long-term ambition of sending humans to Mars.

For now, however, attention has shifted from SpaceX’s technological ambitions to whether its nearly $2 trillion (£1.5 trillion) valuation can withstand mounting pressure from short sellers, weakening sentiment in credit markets and a wave of additional shares expected to enter the market in the coming weeks.

Originally published on IBTimes UK