After Being Shorted, SpaceX (SPCX.US) Strongly Rebounds! Stock Price Surges Nearly 40% from Low, Short Positions Drop Sharply to 11%

According to Zhitong Finance APP, as SpaceX (SPCX.US) shares have rebounded sharply from their post-IPO slump, short sellers are rapidly retreating. According to data from S3 Partners, as of Wednesday, SpaceX’s short interest has dropped to about 11% of its publicly traded shares, a significant decline from last week’s peak of 34%. This decrease reflects the combined impact of short covering and a substantial increase in the number of tradable shares following the first large-scale lockup expiry. Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3 Partners, said: “Those who want to short are out of bullets. There’s a limit to how much capital you can put into a trade.”

As shorts retreat from SpaceX, the stock price has also sharply rebounded from the sell-off after its earnings release, with short covering likely further fueling the rally. For popular stocks with high short interest, if the share price rises sharply instead of falling as shorts expect, short sellers are forced to buy back shares, possibly pushing prices even higher—creating a positive feedback loop of “rising — covering — further rising.” On Wednesday, SpaceX shares closed up 9.65% at about $146, putting the price about 8% above its $135 IPO price and up approximately 39% from the low on August 3.

Since going public, SpaceX’s share price has experienced a roller-coaster ride. Shortly after its IPO, the stock rapidly surged to record highs before losing more than $1 trillion in market value. Last Wednesday, SpaceX released its first public earnings report since listing, resulting in a single-day drop of 14%, mainly because spending on its artificial intelligence (AI) division exceeded market expectations. But just two trading days later, market sentiment shifted sharply. Last Friday, SpaceX shares rallied about 16%, posting a two-day cumulative gain of nearly 23%, bringing the price close to the $135 IPO level again.

What makes SpaceX’s rebound particularly noteworthy is that it has happened right after the market’s biggest worry—lockup expiry—materialized, which was also one reason short sellers targeted SpaceX aggressively. Last Thursday, about 911.5 million previously locked shares entered the market, pushing the number of tradable shares up from 639 million to 1.55 billion, a more than twofold increase in float. According to previous market concerns, the sudden influx of shares could create immense potential selling pressure. But in fact, the unlocking event marked the starting point of the upward reversal.

With the increase in floating shares, the proportion of short interest naturally fell relative to all tradable shares. However, S3 Partners also pointed out that short covering was a key factor driving the decline in short positions, as those betting on a decline in SpaceX shares bought back stock to close their short positions.

More shares are set to unlock soon. According to the prospectus, another 319 million shares could be unlocked on August 20, followed by about 700 million in September and nearly that many more in October. The additional shares could bring fresh volatility as employees and early investors gain greater opportunities to sell. At the same time, a larger float will also make it easier for investors to establish new short positions if bearish sentiment re-emerges.

Beyond the “tsunami” of unlocked shares, another key reason short sellers have targeted SpaceX is its “cash-burning black hole” of an AI business. For every $1 of revenue that SpaceX’s AI division generates, about $6.18 in capital needs to be invested. Shorts are betting that this cash-intensive model is unsustainable. Despite AI achieving $2.56 billion in revenue in the second quarter (a 247% year-on-year increase) and positive adjusted EBITDA of $1.146 billion for the first time, GAAP operating losses still reached $1.26 billion, mainly due to depreciation costs of $1.885 billion. Shorts also argue that market fervor for Elon Musk’s personal aura and grand narratives has far outpaced the company’s actual fundamentals.

Elon Musk issued repeated warnings to short sellers last month: “The survival probability for institutions with heavy, long-term short positions in SpaceX is extremely low.” “SpaceX’s value will surpass that of the entire Earth, that’s for sure.”

At its core, the tug-of-war over SpaceX is a debate about whether “a company that has yet to achieve sustained profitability can support a trillion-dollar valuation.” The SpaceX story has never been about “the present,” but about “what if.” If Starship achieves full reusability, if Starlink becomes the fourth major operator, if space data centers become reality—each “if” represents another bet placed by the market.

The rapid rebound in the share price does not mean that market concerns over SpaceX’s high valuation have vanished. As the supply shock from unlocked shares is digested, investors still face a core question: before SpaceX’s AI, satellite internet, and space businesses realize their full potential, will the market continue to pay such a lofty premium?

At present, SpaceX is simultaneously betting on multiple growth fronts including rocket launches, satellite internet, and AI infrastructure. Whether SpaceX shares can continue breaking higher depends not only on the growth of Starlink and other existing businesses, but also on how soon the market sees actual returns from its AI infrastructure investments.

Matt Maley, Chief Market Strategist at Miller Tabak, pointed out that once the trading impact of recently unlocked shares fades, investors will ultimately need to decide whether they are willing to buy a company at such high prices when it may still take years to fully realize its potential.

An unlocking event that might have otherwise triggered a sell-off has been rapidly absorbed by the market, while short covering and bullish option activity have further amplified the upward momentum. But as these short-term trading factors subside, the market will ultimately return to a basic question—can SpaceX deliver on its already lofty expectations through growth in the coming years? If the answer is yes, $135 may only be the starting point for the next rally; if the outcomes in AI and space businesses fall short of expectations, then the sharp rally—fueled by short covering and options traders—may become the new source of volatility.