SpaceX (SPCX.US) shares have staged a powerful comeback from their post-IPO slump, with short sellers rapidly exiting. According to S3 Partners, as of Wednesday, short interest in the stock has fallen to about 11% of its public float, a sharp decline from last week's peak of 34%. This drop reflects the combined effect of shorts covering and a significant increase in the number of tradable shares following the expiration of the first major lock-up period.
Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said: "Those who wanted to short the stock have run out of ammunition. There's only so much capital you can put into a single trade." The retreat of bears comes as the stock mounts a strong rebound from the sell-off following its earnings report, with short covering likely fueling the rally. For heavily shorted popular stocks, once the price rises instead of falling as shorts expect, forced covering can create a positive feedback loop of "rising, covering, and further rising."
On Wednesday, SpaceX shares closed up 9.65% at roughly $146, putting the stock about 8% above its IPO price of $135 and about 39% higher than its low on August 3. The stock has experienced a roller-coaster ride since its listing. Shortly after the IPO, shares surged to an all-time high before losing over $1 trillion in market value. Last Wednesday, after the company released its first public earnings report, shares fell 14% in a single day, mainly due to higher-than-expected spending on AI.
However, in just two trading sessions, market sentiment reversed dramatically. On Friday, SpaceX shares rose about 16%, bringing the two-day cumulative gain to about 23% and pushing the stock back toward its IPO price of $135. This rebound is particularly notable because it occurred after the most feared event: the lock-up expiry, which was a key reason shorts targeted the stock. Last Thursday, approximately 911.5 million previously restricted shares became available for trading, more than doubling the tradable float from 639 million to 1.55 billion shares.
Contrary to market fears that a flood of new shares would create massive selling pressure, the lock-up expiry actually marked the starting point of the rebound. Naturally, the short interest as a percentage of the float dropped after the public float expanded. However, S3 Partners noted that short covering also contributed to the decline, as investors who had bet against the stock bought back shares to close their positions.
More SpaceX shares are set to unlock. According to the prospectus, another 319 million shares could become available on August 20, followed by about 700 million in September and a similar number in October. These new shares could introduce fresh volatility as employees and early investors gain more opportunities to sell. At the same time, a larger float makes it easier for investors to establish new short positions if bearish sentiment re-emerges.
Beyond the lock-up "tsunami," another reason shorts targeted SpaceX is the company's AI business, a "money-burning black hole." For every dollar of revenue generated by SpaceX's AI operations, the company spends about $6.18 in capital. Shorts are betting this cash-burning model is unsustainable. Although the AI business delivered $2.56 billion in second-quarter revenue (up 247% year-over-year) and turned positive on adjusted EBITDA for the first time at $1.146 billion, GAAP operating losses still stood at $1.26 billion, largely due to $1.885 billion in depreciation expenses.
Additionally, bears argue that the market's enthusiasm for Elon Musk's personal aura and grand narratives has far exceeded the company's fundamental support. In response to the short-selling siege, Elon Musk issued warnings last month, stating: "Institutions that heavily short SpaceX for the long term have an extremely low survival rate." He added: "There is no doubt that SpaceX's value will surpass the entire Earth."
At its core, the battle between bulls and bears around SpaceX is a disagreement over whether an unprofitable company can support a trillion-dollar valuation. SpaceX's story has never been about "now," but about "what if." If Starship achieves full reusability, if Starlink becomes the fourth-largest telecom operator, if space data centers become a reality—each "what if" represents a growing bet. The rapid stock rebound does not mean market concerns about SpaceX's high valuation have disappeared.
As the supply shock from the lock-up expiry gradually fades, investors must still face a core question: Is the market willing to continue paying a very high valuation for SpaceX before its AI, satellite internet, and space businesses fully realize their potential? The company is currently betting on multiple growth directions simultaneously, including rocket launches, satellite internet, and AI infrastructure. Whether SpaceX's stock can break higher in the future depends not only on the growth of existing businesses like Starlink, but also on whether the market sees tangible returns from AI infrastructure investments.
Matt Maley, chief market strategist at Miller Tabak, noted that once the trading impact of the lock-up expiry fades, investors will ultimately need to decide whether they are willing to buy at such high prices a company that may take years to fully realize its potential. The lock-up event, which could have triggered a sell-off, was quickly absorbed by the market, with short covering and bullish options trading amplifying the upside momentum. But as short-term trading factors gradually recede, the market will eventually return to a fundamental question: Can SpaceX deliver on its already sky-high market expectations through years of business growth?
If the answer is yes, $135 may just be the starting point for the next leg of the rally. If the pace of AI and space business delivery falls short of expectations, the recent sharp gains driven by short covering and options money could become a new source of volatility.