The Worst Is Still To Come For SpaceX

Reality is approaching, and it will hit hard.

Photo by Anirudh on Unsplash

At the time of writing, SpaceX has scrubbed and delayed Starship’s 13th launch, the company’s stock has reached an all-time low, and SpaceX is being sued for allowing its chatbot to generate tens of thousands of CSAM images and millions of unconsensual sexualised images. In return, xAI/SpaceX is suing one user from South Carolina for allegedly using the chatbot in this manner. Oh, and China landed a rocket booster for the first time, using a design that is arguably better than SpaceX’s. Needless to say, SpaceX hasn’t had the best time as of late. But it is about to get so much worse for them.

Let’s zoom in on that stock slide, because we all know that is what Musk cares about above anything else. Just over a month ago, SpaceX peaked at $225 a share; at the time of writing, it has slipped down past its $135 IPO price to just $115. That means in just 36 days, SpaceX lost 49% of its value, wiping out roughly $1.4 trillion in market cap (which is more than Tesla’s current worth) and, in the process, forcing every single IPO or open market SpaceX investor still holding their position into a loss.

That is monumentally awful. But it is somehow even worse than you think.

As I have covered before, SpaceX engineered its IPO heavily to send the price skyrocketing. One of the most concerning of these manipulations was how Musk got NASDAQ to fast track SpaceX’s inclusion into index funds. Normally, stocks have to go through a year of “seasoning” after an IPO to be included in these products, to protect index investors from volatility. But NASDAQ changed these rules for SpaceX, allowing it to be included in its index after just 15 days of trading on the 7th of July. There are no exact numbers being reported, but it has been estimated that this would have caused $4.3 billion in forced purchases of SpaceX stock as NASDAQ rebalanced 100 investors’ portfolios to include it.

The total value of stock in the market (or ‘float’) on July 7th was roughly $86 billion, meaning this $4.3 billion NASDAQ index purchase would have tried to buy roughly 5% of SpaceX’s float. That should have permanently bumped up the stock price, given that this is a huge influx of consistent demand. But it didn’t. In fact, this barely changed the stock price at all.

Why? Well, just before this inclusion, SpaceX’s stock’s volume (how much is being sold/bought) spiked. In other words, a significant portion of SpaceX IPO investors sold at the exact same time the NASDAQ index was buying. Now, investors knew about NASDAQ’s rule change well ahead of time. So this all just looks like stock flipping. A considerable number of SpaceX IPO investors bought in with the express purpose of making a quick buck by flipping the stock to the index funds.

This means that SpaceX’s peak valuation was falsely inflated. But it also makes this rapid downward spiral even worse. After all, SpaceX lost almost half its value while billions’ worth of stock was being bought up. This shows that investors aren’t buying SpaceX as a company but the grift that surrounds it. It paints SpaceX investors as more similar to memecoin shills than stock traders.

This isn’t exactly good news, considering what is about to come.

Right now, SpaceX insiders (those who held shares pre-IPO) are unable to sell due to the IPO’s lock-in period. SpaceX, rather smartly, opted for a phased release, where insiders could sell 20% of their shares when SpaceX’s Q2 earnings are published (likely at the end of July or early August). The rest of their shares will be unlocked for sale in 20% chunks 90, 105, 120 and 135 days post-IPO. This staggering is not normal at all. But it does mean that insiders trying to exit won’t flood the market and crash the price.

However, because of how few shares were sold in the IPO, that is nowhere near sufficient enough protection!

Musk owns roughly 42% of SpaceX and is excluded from this lockup, meaning he can only sell his position a year post-IPO. SpaceX’s IPO only sold roughly 4.5% of its shares to the open market. That means that these insiders own 53.5% of the company, and in a few weeks, they will be able to sell 20% of these shares. Therefore, if all insiders maximise how much they can sell, then 10.7% of SpaceX’s shares will enter the market. That would triple the number of SpaceX shares in the open market, which would utterly crash it.

Then, this issue will snowball. By December of this year, 40% of SpaceX’s stock will be eligible to sell on the open market, meaning the float could increase by up to nearly nine times before the end of the year! There is a potential tsunami of supply coming, and that can only do one thing to the price.

You might think that all these insiders are venture capital firms or Big Tech companies, making them less likely to undertake such a destructive sale and hold the line together. But actually, there are a multitude of individuals in this lock-up. SpaceX employees own 10% to 15% of the company, and directors own massive portions, like Antonio Gracias, who owns 7.3%. These people are less incentivised to hold the line and are instead incentivised to maximise their position and cash out before anyone else does. So let’s say Gracias is the only insider to sell on this upcoming lock-up expiry, and he sells the maximum 20% of his shares. Well then, he alone would increase the available SpaceX shares on the open market by 30%. That is enough to crash the price. If he sells these shares for $100 a piece, this sale would also net him just over $10 billion in hard cash. This single sale alone would make him the 300th wealthiest person on planet Earth.

It is foolish to believe that SpaceX insiders are going to try and GameStop this sale and all hold together. The incentive to sell everything as soon as possible is palpable!

Especially when you consider where SpaceX is going.

Because there is very little justifying SpaceX’s valuation, its value can truly plummet. Morningstar pegs SpaceX’s true value at $780 billion, or just $63 per share.

That suggests that SpaceX can fall another 50% before hitting its floor. However, Morningstar is still very optimistic that ventures like AI, orbital data centres and Starship will eventually work out and be valuable businesses. But I, along with many others, believe these ventures are dead ends and that the true value is far, far lower.

Sadly, I do not have time today to fully explain how I would value SpaceX — that is for another article, another day. But what I can say is that it is more like $20 per share.

SpaceX insiders, particularly those with an engineering background, might not share my pessimistic outlook, but they will recognise that even Morningstar’s valuation is optimistically high — particularly when SpaceX’s last internal fund raising in 2024 valued the company at $350 billion, and the company hasn’t actually grown dramatically since then.

My point being, insiders are aware that SpaceX has an enormous potential to lose a catastrophic amount of value. Combine that with these lock-up periods expiring imminently, along with the AI bubble wobbling, and insiders are likely very anxious to liquidate before the value of their holdings vanishes into thin air.

Basically, it looks like SpaceX is at the top of a dangerous slippery slope. Moreover, SpaceX’s true value is increasingly looking like a grift, in the same way NFTs or memecoins had “value”. The value is in flipping the stock to a gullible bagholder, not the asset the shares represent. But that also means this stock won’t follow typical market forces. So, while the price has been consistently ticking downwards, expect chaos and volatility. But there is a storm coming for SpaceX, and it isn’t going to be pretty. My advice would be to grab some popcorn.

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Thanks for reading! Everything expressed in this article is my opinion, and should not be taken as financial advice or accusations. Don’t forget to check out my YouTube channel for more from me, or Subscribe. Oh, and don’t forget to hit the share button below to get the word out!