Retail traders went against the "smart money" and bought SpaceX despite the sell-off

Retail investors have begun actively buying SpaceX shares, which had fallen sharply following the company’s first earnings report as a public company. Institutional investors appear to have been wary of the unexpected scale of investments in AI, while retail traders saw these expenditures as a bet on long-term success, Vanda Research found.

In just the first hour of trading in New York on August 5, retail investors purchased $22.7 million worth of SpaceX shares, net of sales, Reuters reports, citing data from Vanda. For SpaceX shares, this result was the third-best among all first hours of their 37 trading sessions since the IPO; it also more than tripled the average net inflow during the first 60 minutes of each SpaceX session, MarketWatch notes. On that day, shares of Elon Musk’s aerospace and AI company were the most-bought U.S. stocks among retail investors—outpacing even AMD shares, which had fallen in price.

Retail investors’ interest in SpaceX did not wane even during the sell-off in June and July: Since the IPO on June 12, there has not been a single day when they collectively sold more SpaceX shares than they bought, Reuters notes. According to Vanda’s assessment, following the earnings report, retail investors did not stop buying on the dip but instead began to take advantage of the pullback even more actively.

Professional investors were alarmed by SpaceX’s capital expenditures for the second quarter: over $18 billion, nearly 40% more than analysts had anticipated. Most of the funds are earmarked for the construction of data centers and other AI-related projects. These figures have heightened concerns about how long the profitable Starlink business will be able to finance SpaceX’s costly developments in this area, Reuters reports.

Retail investors drew the opposite conclusion. According to Vanda’s assessment, the buying activity on August 5 indicates that retail investors view large-scale investments in AI not as a reason to sell shares, but as a factor that increases SpaceX’s chances of becoming a long-term leader in this field. On August 5, the company’s stock closed at $108.27, down 13.6% for the session. This is about 20% below the IPO price of $135.

Private investors were buying SpaceX shares ahead of a sharp increase in the supply of shares. Starting August 6, restrictions on the sale of up to 911.5 million shares held by early investors and insiders will be lifted, MarketWatch notes. Their value exceeds $100 billion. As a result, the free float could more than double. Another portion of the shares will become available for sale in August and September, and the process of lifting restrictions will continue through December, the publication notes.

Spectra Markets founder Brent Donnelly believes the market has already priced in the expected increase in supply. In the three cases he studied, the first lifting of restrictions following an IPO coincided with an attractive buying opportunity, although the recovery in share prices was not sharp. However, Donnelly’s sample size was small, and in all three instances, the volume of shares released was significantly smaller than what is expected in the case of SpaceX, MarketWatch notes.

Most analysts, whose assessments were compiled by Business Insider, remained optimistic following the report. Morgan Stanley, Cantor, Oppenheimer, and Bernstein reaffirmed their “overweight” (Overweight or Outperform) ratings, while Bank of America and Deutsche Bank maintained “Buy” ratings. The price targets set by these six firms range from $235 to $300, implying a 117–177% increase in SpaceX’s share price relative to its closing price on August 5. Piper Sandler reaffirmed its “Neutral” rating: its price target of $140 is 29% above the current level.

This optimism stems primarily from the faster development and commercialization of AI projects. Oppenheimer now expects SpaceX’s revenue to reach $1 trillion by the end of 2032—three years earlier than its initial forecast. Bank of America estimates that the artificial intelligence business will generate approximately $24.5 billion in revenue by the end of 2026. Morgan Stanley has raised its total revenue forecast for this year from $45 billion to $48 billion, and for 2027 from $91 billion to $102 billion.

The main risks remain capital expenditures and an increase in the number of shares outstanding. Estimates of these costs vary widely. According to Business Insider, Morgan Stanley expects capital expenditures to reach $163 billion in 2027, while Piper Sandler’s forecast is approximately $65 billion. Piper Sandler also warns that the phased lifting of restrictions on the sale of shares will hold back SpaceX’s market valuation until the summer of 2027.

Relying on retail investors is one of Elon Musk’s key strengths. The billionaire consistently builds his businesses with a focus on retail investors: while typical corporations allocate no more than 5–10% of their shares to retail investors during an IPO, Musk set aside about 20% for retail investors as part of the SpaceX offering .

A similar strategy works at Tesla as well—there, during earnings calls, top management traditionally begins by answering questions from minority shareholders. This attention has helped build an exceptionally loyal following, the Financial Times noted: Tesla’s price-to-earnings ratio is one of the highest among Wall Street’s “blue-chip” stocks.

This article was AI-translated and verified by a human editor