SpaceX’s retail army clashes with Wall Street’s growing number of short sellers

Retail investors piled into SpaceX at a record clip last week, betting on Elon Musk’s space venture even as hedge funds lifted bets on it sinking in value.

According to data from investment consultants Vanda, amateur investors purchased a record net $US405 million ($588 million) worth of SpaceX shares last week.

Short interest has surged in response to set up an epic clash between mum and dad investors and Wall Street’s professionals. Data shows around 40 million SpaceX shares have been sold short as at June 24. Hedge funds short shares by borrowing them to sell in the expectation they can buy them back later, at a cheaper price.

The last time a social-media-fuelled army of amateur investors took on the pros was during the lockdown-era battle over videogame maker GameStop.

In early 2021, GameStop shares rocketed 1,700 per cent in a month as the power of community-based - or social trading - first revealed itself to the cost of Wall Street. Whether it costs the professionals again, in the form of SpaceX, only time will tell.

Unknown trajectory

Since it hit the Nasdaq boards on June 12, SpaceX’s successful share market listing has been underpinned by a limited amount of shares for sale - equal to less than 5 per cent of the total on issue - to meet record-breaking demand from buyers.

Many investors are also buying shares because they believe in its ambitious goals to dominate AI services and Elon Musk’s dream to launch data centres into space.

“Loyal holders of companies run by Elon Musk have a very long time horizon and are often willing to look past interim milestones toward the prospects of big bets on moon-shot projects and the grander vision on the horizon,” said Morningstar’s analyst Nicholas Owens.

On the other hand, short sellers are counting on an imminent large release of additional shares for sale to eventually push SpaceX’s share price down.

“In the year following SpaceX’s initial public offering of just under 5 per cent of its shares, the remaining 95 per cent will become available for sale by insiders to the public, which could test marginal demand and drive volatility in the stock price,” said Owens.

The lack of shares for sale has also stoked the stock’s wild swings.

On its first day’s trade shares jumped 19 per cent above SpaceX’s IPO price of $US135 to close at $US160.95.

By June 16, it surged as high as $US225.64 to make Mr Musk the world’s first trillionaire. But over the week to June 24, Musk lost that status as SpaceX tumbled 32 per cent.

On Thursday afternoon on Wall Street, SpaceX shares lost 1.3 per cent to $US152.46.

This is only just a couple of dollars higher than the $US150 price the company opened at on its June 12 stock market debut. If it falls below $US150 then every mum and dad investor that bought after it listed will be sitting on a paper loss.

Micron surges, Apple tumbles

The Magnificent 7 stocks also fell sharply on Thursday after blowout profits from computer memory maker Micron extended a trend of investors buying any companies linked to computer hardware, and avoiding the mega-caps.

In fact, last week’s net buying in SpaceX was more than the combined total of net retail purchases in all of the Magnificent 7 companies, Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla at $US158 million over the same period.

Micron’s record earnings saw it fly 10 per cent higher to crown a 1042 per cent rally over the past 12 months on a $U1.4 trillion valuation.

Apple also fell 5 per cent after it warned the surging cost of computer hardware will force it to lift the price of most of its Apple Mac computers by hundreds of dollars.

Shares in Musk’s electric vehicle business, Tesla, traded down 1 per cent, but are still up 15-fold over the past 10 years.

Tesla has cost short sellers plenty of red faces and a fortune in losses after its share price rise proved the doubters wrong in a potentially cautionary tale for SpaceX’s sceptics.