SpaceX Bears May Be Right On Value And Wrong On Timing

Before (SPCX) went public, I wrote that the extraordinary demand for its IPO might be the warning. The shares were priced at $135, climbed to $225.64, and closed Friday at $115.07. Investors who loved the stock six weeks ago now appear eager to sell it. The company has lost almost half its value since the high. Short sellers, meanwhile, are sitting on an estimated $15.5 billion of paper profits.

That first article was about scarcity and behavior. Too many investors chased too few shares, and the excitement around owning (SPCX) became more important than the price they paid.

When the stock returned to its IPO price, I wrote that $135 was not automatically a buy. An offering price is a number agreed upon during a sales process, not a declaration of fair value.

Both warnings have held up. But markets move, and the risk has now moved with them.

The dangerous crowd is no longer only the one that chased (SPCX) higher. It may now include the investors who believe the decline has become an easy one-way trade.

I still think (SPCX) is expensive. At Friday's price, the company is worth roughly $1.5 trillion. Aswath Damodaran, the NYU professor known as the dean of valuation, estimated its equity value at around $1.3 trillion before the IPO. His largest concern was the value being attached to the artificial-intelligence business, where the assumptions are much harder to defend than they are for Starlink or the launch operation. The bears have a case. My concern is that they are becoming too comfortable with it.

The Easy Part of the Short May Be Over

Around 360 million (SPCX) shares, representing roughly 56% of the freely traded stock, were out on loan earlier last week. Short sellers were not using the decline to take profits. According to Ortex, they were increasing their positions. That does not prove they are mistaken. Crowded trades can remain profitable for a long time. It does tell us what might happen if the news starts improving.

A short seller eventually has to buy the shares back. When a large part of the available stock has already been borrowed and sold, even a modest change in expectations can create demand from investors who are not buying because they suddenly love the company. They are buying because the trade is moving against them. This is the mirror image of the IPO. In June, investors were afraid they would miss the rise. Now short sellers are afraid they will miss the decline. A stock rising from $135 to $225 felt safer because other investors appeared to agree with the bullish story. A stock falling toward $115 makes the bearish argument feel more obvious because the price appears to confirm it. Price is evidence, but it is not always proof.

(SPCX)'s launch economics did not deteriorate by 49%. Starlink did not lose half its subscribers. The stock fell because expectations, positioning, and the supply of willing buyers changed.