Morgan Stanley and Goldman Space X IPO plan to curb post-float selloff

The Wall Street banks elected to work on Space X’s anticipated listing are drawing up plans to curb a post-IPO slump that could have detrimental effects to its valuation.

Advisers on the deal are exploring whether insiders and early investors could be allowed to sell shares before the standard 180-day lock up has passed, according to Semafor, but in a controlled, phased way linked to price and trading volumes.

The strategy proposal, which seems to still be under discussion, has been designed to avoid a so-called lock-up ‘cliff’, whereby a flood of stock hits markets just as restrictions lift. This is a risk only aggravated by the sheer scale of Elon Musk’s mega listing.

At a mooted valuation of up to $2 trillion (£1.47 trillion), Musk’s IPO could raise up to $75bn, crowning it as the largest ever seen. Yet it seems bankers are increasingly nervous on what may happen next.

Only a small slice of its shares, potentially less than five per cent, has been expected to be floated initially, which falls far below the average benchmark.

This leaves a vast backlog of stock held by its early backers, many of whom have been invested in the firm for nearly two decades, and are sitting on huge paper gains.

One idea that is being discussed would drip-feed more than $1 trillion worth of stock over time, smoothing supply and limiting volatility, according to people close to the matter. But the structure isn’t final, and could still be ditched.

The talks rise as a syndicate of over 20 banks line up behind the deal, with Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America and Citigroup among those reportedly expected to lead.

Morgan Stanley is widely seen as a frontrunner given its proximity to founder and chief executive Elon Musk, despite final mandates having not been confirmed.

Lock-up risks loom over mega IPO

The post-IPO risks of a selloff aren’t new, but this scale would be a first. Space X began raising external capital around 18 years ago now, which means even relatively new investors are sitting on outsized gains.

This generates a powerful incentive for them to sell once restrictions are lifted, which has historically weighed on newly listed stocks.

Traders often position ahead of lock-up expiries, shorting sales or delaying purchases in anticipation of increased supply.

Variations on lock-ups have been tested before, such as e-commerce giant Alibaba, which staggered share releases after its record-breaking debut in 2024. Elsewhere, Datadog linked early selling to share price performance.

Banks can also waive lock-ups entirely, as seen with Beyond Meat after its early surge, though that carries reputation risks if prices later collapse.

The structure of Space X’s IPO has already taken an unconventional route, with the company revealing earlier this month it is considering allocating up to 30 per cent of its shares to retail investors, in a bid to tap into Musk’s loyal following.

The listing has also been complicated by Musk’s decision to fold xAI into Space X, creating a combined group valued at around $1.25 trillion.

While the move strengthens the firm’s AI narrative, it also adds layers of regulatory risks at a sensitive moment.

Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America and Citigroup were all contacted by City AM for comment, and either declined or did not respond.