SpaceX rises 6% after more than 900 million shares are unlocked

By John Towfighi, CNN

New York (CNN) — More than 900 million SpaceX shares unlocked Thursday, more than doubling the publicly available shares in Elon Musk’s space and AI company and testing investors’ interest in holding a stock that’s struggled since a record-breaking IPO nearly two months ago.

A lockup expiry enables some employees and early investors who bought pre-IPO to sell. While the unlocking makes the shares available to trade, it’s up to the holder whether they want to sell or keep their shares.

SpaceX shares (SPCX) rose more than 6% on Thursday.

The lockup expiry comes after the stock sank almost 14% Wednesday – its second-worst day on record – and closed at $108.27 a share, an all-time low. The company’s Tuesday earnings report revealed larger-than-expected capital expenditures on artificial intelligence, while investors also geared up for the lockup expiry.

“You have a few different things triggering volatile action in the name, all happening at the same time,” Ryan Lee, senior vice president for product and strategy at Direxion, told CNN.

Investors unrelated to the lockup expiry are also factors for the stock’s performance: The sharp drop in the stock on Wednesday could have beckoned dip-buyers to step in.

Wednesday and Thursday marked the strongest retail investor activity in SpaceX since the first three days after its IPO, according to Viraj Patel, global macro strategist at Vanda. There has been net buying from retail every day that SpaceX has traded, he added.

“Definitely no signs of retail letting up on one of their newfound darling names,” Patel said in an email to CNN.

Thursday was the first in a series of share lockup expirations scheduled across the next year. The lockup expirations will make more shares publicly available for trading, possibly adding pressure on the stock price and stoking volatility.

SpaceX sold roughly 640 million shares at its IPO, equivalent to less than 5% of its total shares. Thursday’s unlocking of up to 911.5 million shares more than doubled that available number, so about 12% of total shares are now available for trading.

More publicly available shares also sets up SpaceX to have a larger weighting in stock indexes like the Nasdaq 100, which it joined earlier this summer. The larger a company’s weighting, the more influence it has on the index’s performance.

The Nasdaq 100 weights stocks based on their market value and the number of shares available for trading. The index rebalances every three months and will rebalance in September, accounting for updated levels of publicly available SpaceX shares.

Another chapter in SpaceX’s journey

After the IPO, the scarce supply of shares paired with intense interest from retail investors sent the stock soaring. But the stock has since tumbled, down more than 40% from its record high on June 16 and down 15% from the IPO target price of $135 a share.

Employees who have had shares for a while could have bought when the price was well below its current trading range. Those holders could be sitting on sizable gains despite recent volatility, giving them an incentive to sell now, Lee at Direxion said.

“With these employee share unlocks, you’re going to have natural sellers entering the market,” Lee told CNN. “These are people who’ve (held the stock) far before it was printing at $135 on the IPO.”

Employees and early investors who had their shares unlocked could also decide to hold on to their shares, or only sell some of them.

“If there’s less selling pressure than had been expected, the stock price sometimes goes up when lockups expire. Most of the time, it goes down, but not always,” Jay Ritter, professor emeritus at the University of Florida and an expert in IPOs, told CNN.

When a company goes public, it often doesn’t release all of its shares for public trading at once. Some shares are held by executives, others by funds and individual investors who got access when the company was private. Those pre-IPO shares can be subject to lockup periods.

Typically, a company will instill a 180-day lockup period before pre-IPO shares become eligible to trade. SpaceX, however, is following a less common model. SpaceX has a staggered, tiered calendar for unlocking its shares for public trading.

SpaceX in total has more than 7.5 billion Class A shares (mostly held by employees and investors) and more than 5.5 billion Class B shares (mostly held by Musk and executives). After a series of more unlocks this year, more than 5 billion of those Class A shares could be publicly available for trading.

“An influx of new shares can weigh on any stock in the short term, but that doesn’t change the underlying picture,” Justus Parmar, founder and CEO at Fortuna Investments and a SpaceX investor, said in an email to CNN. “What matters most is the strength of the business and Musk’s ability to keep executing on the long-term vision.”

In 2027, extended lockup periods for company executives will begin to expire. Musk’s shares – worth more than 40% of the company’s value – are locked up until one year after the IPO.

In the Nasdaq 100, SpaceX currently has a weighting of about 1%. At its current stock price, considering 911.5 million shares unlock Thursday, SpaceX’s weight in the Nasdaq 100 could rise above 3.5% after the index rebalances in September, according to TD Securities. However, it all depends on how the stock performs.

“The key question that market participants want to understand is … what is the share price going to do? And, of course, that’s nothing anyone knows for sure,” Peter Haynes, head of index and market structure research at TD Securities, told CNN.

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