The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
NEW YORK, August 5 (Reuters Breakingviews) - Even a rocket-maker can’t escape the gravity of public markets. Shares of Elon Musk’s SpaceX fell 10% to $112 on Wednesday morning, a rough reaction to the company’s first earnings report since its blockbuster listing. Already sitting well below a $135 initial offering price, the stock may have further to descend: on Thursday, the first of 17 sets of restrictions on pre-IPO investor sales will expire. The resulting turbulence could delay subsequent debuts by the likes of OpenAI or Anthropic.
Holders of about 20% of SpaceX’s SPCX.O restricted shares, worth about $100 billion, will be free to start selling this week. Yet more could become eligible for sale if the stock trades above specified price thresholds for consecutive trading days, part of a complex web of lock-ups meant to blunt the impact of the $1.5 trillion company’s long-time backers finally getting an exit.
Their incentives diverge from investors who only gained access when Musk pulled off the largest IPO of all time. For roughly two decades, SpaceX took investments from everyone from venture capitalists to tech giants, and the astonishingly quick rise in its valuation just before going public leaves them sitting on massive gains – big enough, in fact, to shift Alphabet’s GOOGL.Obottom line. Anyone who bought in at the offering price and held on, meanwhile, is underwater.
OpenAI and Anthropic will be watching the countdown. The leading, still-private AI labs, last valued at $852 billion and $965 billion respectively, are very different businesses from SpaceX, but their public ambitions rely on tapping the same crowd of buyers. Institutional investors with a long-term holding strategy ended up buying about 70% of shares offered in Musk’s company, but retail investors took 20%, while hedge funds took 10%, Reuters reported at the time.
Those marginal buyers are extremely important. In the week of SpaceX's listing, Bank of America data showed that hedge funds were the only major client group adding U.S. equity exposure, buying a net $1.8 billion, while institutional clients sold $2.7 billion. Retail trading flow, meanwhile, is breaking records previously set during the pandemic, Citadel Securities says, accounting for a big chunk of the market.
Paper losses make it painful to exit their positions and recycle capital into the next mega-deal. Risk budgets may tighten, meaning underwriters face a tougher time making their pitch.
There are still hopeful signs: SpaceX is growing rapidly, and plenty of stocks related to the AI trade have bounced back since tech-crazed hedge fund Situational Awareness came unglued. For now, though, Elon Musk may be his rivals’ most important roadblock.
Follow Karen Kwok on LinkedIn and X.
CONTEXT NEWS
On August 6, about 20% of SpaceX's eligible locked shares become available to sell. An extra 10% could become unrestricted if the stock trades 30% or more above the rocket-maker’s initial public offering price during five of the 10 consecutive trading days after its first earnings release.
(Editing by Jonathan Guilford; Production by Maya Nandhini)