SPCX drops below its IPO price of $150 in pre-market trading, but don’t rush to buy the dip

Original Content | Odaily Planet Daily (@OdailyChina)

Author | Golem (@web3_golem)

On the evening of June 18, SpaceX's Starship, designated number 36, exploded during its 10th static fire test, creating a massive fireball at the scene. Fortunately, there were no injuries. This is the most serious ground accident for SpaceX in recent times. All test facilities were damaged, and Western media described it as a "catastrophic failure."

The "ripple effect" of this explosion quickly spread to the capital markets. From June 18 onwards, SpaceX's stock has fallen for three consecutive trading days. On June 22, it dropped by over 16.43%, wiping out approximately $400 billion in single-day market capitalization, setting the record for the second-largest single-day market cap loss in global corporate history.

Worse still, SPCX has already fallen below its IPO first-day closing price ($160.95). According to Hyperliquid data in after-hours trading, SPCX briefly dipped below its IPO opening price ($150). If the stock truly breaks below $150 when US markets open on June 23, it would mean that all investors who bought and held SPCX in the secondary market would be underwater.

Is this continuous decline due to a loss of investor confidence in SpaceX, or is it merely a short-term market sentiment correction? How will SpaceX's stock price evolve from here? Odaily Planet Daily provides a brief analysis in this article.

The $20 Billion Bond Offering May Just Be the Trigger

The direct trigger for SPCX's over 16% drop on June 22 was SpaceX's announcement on the same day that it would initiate its first senior unsecured note offering. Although SpaceX's 8-K filing with the SEC did not disclose the specific offering size, Bloomberg reported last week that SpaceX was planning a bond offering of at least $20 billion. SpaceX confirmed that the proceeds would be used to repay bridge loans, pay related fees, and for general corporate purposes. This bridge loan was incurred due to SpaceX's acquisition of Musk's own company, xAI, in February.

However, conducting a bond offering less than two weeks after going public is not a positive signal for investors. The additional interest expense from issuing bonds is a minor issue; the greater negative implication is that it indicates SpaceX still needs additional financing.

SpaceX raised $85.7 billion in its IPO. Furthermore, disclosure shows SpaceX had approximately $100.8 billion in cash and cash equivalents on its books. This has become the latest point of attack for bears. A company that just went public, with over $100 billion in cash on its balance sheet, yet is returning to the market to borrow money, implies that SpaceX has not yet achieved positive free cash flow. It also suggests that the cash burn rate of the Starship program and AI infrastructure capital expenditures are far exceeding market expectations.

CFRA Research, an independent research firm that has previously rated SpaceX as "Sell," has also questioned the necessity of this massive financing, commenting, "With Elon Musk, you never know what's going on inside his head."

Prominent tech hedge fund manager Dan Niles also posted on X platform, suggesting that SpaceX's bond issuance and its compute agreement with Reflection AI might remind the market of another hyperscale AI competitor requiring massive financing. He has previously expressed concerns about its high valuation.

Dragged Down by the Global AI Stock Sell-off

The announcement of the bond offering may just be the trigger for SpaceX's decline. The pressure on its stock price is also due to the broader pullback in global AI concept stocks.

On June 23, AI-related stocks fell not only at the close of US markets but also saw corrections in other global markets. On June 23, South Korea's KOSPI index became the worst-performing major index in Asia, falling over 9%. The Korean stock market triggered a circuit breaker in the morning and continued its decline in the afternoon, with SK Hynix and Samsung Electronics both falling over 12%. Meanwhile, Hong Kong's AI duopoly also saw significant drops, with MINIMAX down 15% and Zhipu AI down over 9%. China's A-share market also experienced a collective decline in its four major indices in early trading.

The global pullback in AI concept stocks is primarily due to investors beginning to worry that the investment in AI infrastructure is too large, while the commercial return cycle is too long. There are concerns about whether the capital expenditures will ultimately yield corresponding returns. SpaceX is also seen as one of the representative companies under this logic, where the scale of investment far exceeds the speed of commercial returns, naturally leading to a significant stock price decline.

US financial media outlet ZeroHedge posted on X platform on June 22, stating that the divergence between hyperscale cloud vendors and semiconductors is intensifying, with massive capital expenditure becoming the key factor.

Retail Buying Power Dries Up, Negative Impact of Equity Unlocking Priced In Early

Since its listing, SpaceX has been one of the most sought-after stocks by retail investors in the US market. Because initially only less than 5% of the float was tradable, the SPCX stock price was actually lifted by retail investors. According to Vanda Track, retail investors net bought $405 million worth of SPCX in the first five trading days. The volume of retail buying for SPCX exceeded the total combined retail buying of the other six of the "Magnificent Seven" stocks (NVDA, MSFT, AMZN, META, GOOGL, and GOOG), which only saw $278 million in buys during the same period.

However, retail buying cannot serve as long-term support for SPCX's stock price. On the contrary, the more aggressive the early retail buying, the faster the retail momentum will dissipate when the sentiment cools down after the real buyers have finished their purchases.

Options trading for SpaceX began on June 16. Initially, bullish sentiment dominated. However, according to OptionCharts data, the Put-Call Ratio for SPCX is now 1.07. From a sentiment perspective, investors have shifted to a neutral-to-bearish stance. While it's not yet a case of unanimous bearishness, it at least proves that retail investors are starting to show timidity.

This sharp decline in SPCX is occurring with only 5% of the shares outstanding available for trading. How can SPCX hold up when the equity lockup expires? In a way, the current stock price decline is an early realization of the negative impact of the equity unlock. Investors may be waiting for the first round of equity unlocking before re-establishing their positions.

According to regulations, after SpaceX releases its Q2 earnings report in mid-August, 20% of the stock will be unlocked. If the stock price is 30% above the IPO price on that date and meets this standard for 5 out of 10 trading days, an additional 10% could be unlocked.

Jeff Jacobson, a strategist at 22V Research, stated that insiders could sell up to 44% of SpaceX's shares by early September, which would increase the current public float by approximately 900%.

The next potential catalyst for SpaceX is inclusion in the Nasdaq 100 index, possibly in July. However, due to three consecutive days of stock price decline, investor fear regarding SpaceX has outweighed the anticipation of this positive catalyst.

Bull and Bear Arguments

Contrary to the first week of listing, bearish sentiment now dominates the market towards SpaceX. The main bullish and bearish views are as follows.

Correction After Shorting Tools Are Filled; Valuation Already Reflects Future Growth

On June 18, after SpaceX announced the acquisition of Cursor for $60 billion in equity, Morningstar, a renowned independent investment research firm, not only refrained from raising its expectations for SpaceX's AI business but further lowered its fair value estimate from $63 to $62. They believe that without substantial quarterly earnings support, the current stock price is entirely driven by narrative.

Gary Black, co-founder of Future Fund, previously pointed out that before SPCX options trading began, SpaceX's trading logic was completely detached from fundamentals. "Its trading performance was more like a meme stock than a company driven by fundamentals." Therefore, the current crash is an inevitable correction after the shorting tools became available.

On June 22, major US investment bank KeyBanc Capital Markets (KBCM) initiated coverage on SPCX with a "Sector Weight" (Neutral) rating. While not providing a price target, its analysts stated that SpaceX's current valuation has fully reflected future growth and that the stock price could be cut in half. Although there are long-term growth drivers, much of the positive news has already been "priced in."

Cathie Wood Emerges as a Staunch SPCX Bull

In the darkest hour, true believers are revealed. ARK Invest, led by Cathie Wood, is not only a Bitcoin bull but is now also one of the staunchest bulls for SpaceX. On SpaceX's IPO day, ARK Invest made a massive purchase of approximately 3.3 million shares, valued at over $500 million on that day. On June 22, the day SPCX plummeted, ARK bought approximately 210,000 shares of SPCX (valued at around $38.9 million) through several of its ETFs, including ARKK and ARKQ.

Previously, in 2024, ARK's model estimated SpaceX's enterprise value in 2030 would reach $2.5 trillion, approaching $3.1 trillion in an optimistic scenario. At that time, ARK was evaluating a company that was not yet public, with an estimated valuation between $180 billion and $350 billion. Now, SpaceX has successfully gone public, and its market cap briefly approached ARK's model estimate from that time. ARK's decision to increase its position now might reflect a strong long-term bullish view on SpaceX's disruptive innovations in reusable rockets, Starlink, and the space economy.