(Bloomberg) — Two top performing space stocks have been on blistering rallies that risk soon burning short sellers betting against the highfliers, according to data provider S3 Partners.
Shares of Intuitive Machines, Inc. and Rocket Lab Corp. have surged 123% and 131%, respectively, since March 30. The rapid gains have set both of them up for short squeezes, a phenomenon where sellers may be forced to buy the stock back to cover their losing positions. The covering will drive share price even higher, putting more pressure on the cohort.
The underlying reasons for the short squeezes are slightly different, Leon Gross, director of research at S3 Partners, said in a message Thursday.
“One is structural (the crowded) and one is momentum (how much the shorts lost recently),” Gross wrote.
Intuitive Machines stock gains were boosted by a surge driven from a US Space Force contract and $1 billion revenue outlook. Now, the stock boasts more than 18% short interest as a percentage of float, a measure of how many available shares traders have borrowed to bet against it, according to S3 Partners in a note May 14. That’s highly elevated, and alongside the stock’s recent rally, has made the short trade crowded. Paper losses for traders betting Intuitive Machines shares will fall are more than $550 million for the year, S3 data show.
Rocket Lab’s squeeze setup is driven more by momentum after a more than 60% rally in a week, after the company reported first-quarter revenue that beat analyst estimates, and said they seen strong demand for rocket launches and space-related services. The quick pace of the stock’s move could push existing shorts to cover even though short interest as a percentage of float is relatively low at 5.5%, per S3 data. Short sellers in the name have accumulated paper losses of about $1.9 billion so far this year.
“Short covering has not yet materialized; the setup exists, but the squeeze has not,” Gross said of Rocket Lab.
Growing excitement around the space sector has driven attention as investors position themselves in companies seen as beneficiaries of Elon Musk’s SpaceX planned market debut, Space Force and NASA space exploration and lunar contracts, and growing revenue and backlog.
–With assistance from Carmen Reinicke.
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