Short sellers earn $8.7 billion: Why investors are betting against Elon Musk's SpaceX

Some investors are concerned about the company's heavy investment in artificial intelligence, much of which is being financed through debt. These concerns have added pressure on the stock in recent weeks.

In Short

• SpaceX shares debuted at $135, rose to $225.64, then declined
• Short sellers gained $8.7 billion as shares fell near IPO price
• Concerns include high valuation and AI investments funded by debt

SpaceX's stock market debut grabbed plenty of attention last month, but not everyone who made money from the listing actually bought the shares. Investors who bet that the stock would fall are now sitting on massive gains. According to data from analytics firm Ortex Technologies, short sellers have made an estimated $8.7 billion in paper profits after SpaceX shares slipped close to, and briefly below, their IPO price, reported Reuters.

The stock, which was listed at $135, had surged to a high of $225.64 soon after its debut. However, that rally has faded, giving short sellers an opportunity to profit from the decline.

WHAT IS SHORT SELLING?

Short selling is an investment strategy where traders borrow shares, sell them in the market and later buy them back. If the share price falls, they buy the shares at a lower price, return them to the lender and keep the difference as profit.

It is a high-risk strategy because if the share price rises instead of falling, losses can be unlimited.

SHARES LOSE MOMENTUM AFTER STRONG DEBUT

SpaceX shares have seen sharp swings since the company's stock market listing. After climbing strongly in the initial days, the stock gradually lost momentum.

On Wednesday, the shares briefly fell below their IPO price for the first time before recovering to end the trading session just above the listing price.

According to Ortex, traders betting against the stock continued increasing their positions even as the share price declined.

Peter Hillerberg, co-founder of Ortex Technologies, said the stock had been "a rollercoaster" for short sellers, but the outcome had ultimately worked in their favour. Instead of booking profits early, many bearish investors continued adding to their positions as the stock fell.

NEARLY HALF THE TRADABLE SHARES ARE ON LOAN

Ortex estimates that around 49% of SpaceX's free float, or tradable shares, are currently on loan.

While borrowed shares can be used for different purposes, the firm believes that most of them have been borrowed for short selling. Such a high level of short interest suggests that many investors remain cautious about the company's future performance.

WHY ARE INVESTORS BETTING AGAINST SPACEX?

Some investors believe SpaceX's valuation remains expensive despite the recent decline in its share price.

There are also concerns over the company's heavy investment in artificial intelligence, much of which is being financed through debt. These worries have added pressure on the stock in recent weeks.

However, betting against SpaceX is not without risk. The company continues to attract strong interest from both retail and institutional investors. In addition, Chief Executive Elon Musk has often criticised short sellers publicly, making the stock one that can move sharply on sentiment.

Meanwhile, the large number of short positions could make SpaceX shares even more volatile in the coming weeks.

According to Ortex, every $1 move in the company's share price changes the value of short positions by more than $300 million. That means even small movements in the stock could result in large gains or losses for traders.

On Thursday, SpaceX shares were trading around 1% higher at $136.28, slightly above their IPO price. Even so, with investors divided over the company's valuation and future growth, analysts expect the stock to remain highly volatile in the near term.

- Ends