SpaceX's Lockup Expires on Aug. 6. Here's Why 911.5 Million Insider Shares Could Hit the Market -- and What That Means for Investors.

To say that this is an important week for Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, is an understatement. The company reported its first quarterly results after the market closed on Tuesday. And a potentially bigger event happens on Thursday.

SpaceX's first lockup expiration is scheduled for Aug. 6, 2026. Up to roughly 911.5 million shares held by company insiders will be eligible for trading. Here's what this could mean for investors in the world's second-largest communications services stock by market cap.

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An unusual lockup approach

It's first important to understand exactly what a lockup expiration is. Founders, employees, and early investors in a company can't legally sell their stock immediately after an initial public offering (IPO). They're restricted from doing so during a lockup period. The end of this period is called the lockup expiration.

Why do lockup periods exist? They prevent insiders from rushing to sell their shares after an IPO, which could cause the stock to crash just as investors who didn't participate in the IPO can buy.

Lockup periods typically last between 90 and 180 days. However, SpaceX went with an unusual lockup approach. Instead of a fixed lockup period after which all insider shares could be sold, the company designed a staggered schedule that spreads sales over multiple dates.

On Aug. 6, 2026, insiders may sell up to the first 20% of eligible shares. SpaceX's lockup period schedule also allowed for an additional 10% of shares to be sold early if its stock traded at least 30% higher than the IPO price during five of 10 consecutive trading days before its first earnings release. However, that didn't happen.

Why SpaceX's lockup expiration could move its stock

Stock prices, like the prices of any product or service, are governed by the law of supply and demand. When supply is higher, and demand remains constant or declines, prices fall -- and vice versa.

With SpaceX's first lockup expiration, the supply of its stock will increase dramatically. Up to roughly 911.5 million shares could potentially be sold by insiders beginning Aug. 6. To put that number into perspective, SpaceX's entire stock float (the total number of shares available to the public for trading) currently stands below 280.1 million shares.

You might be wondering why insiders would sell their shares, given that SpaceX is trading below its IPO price of $135. The answer is that most pre-IPO investors and employees received their shares at a much lower price than the IPO price.

Some of SpaceX's employees could be especially tempted to sell their shares. The company even warned in its prospectus that its employees are "in great demand." It's not unusual to see early employees wait until they can sell shares, then leave for another job with a rival. SpaceX has several competitors that could be willing to pay handsomely. Some employees could literally "take the money and run."

A steep sell-off isn't a lock.

Is a steep sell-off of SpaceX stock a foregone conclusion after Thursday? Not necessarily. Insiders could wait to sell shares on one of the other lockup expiration dates. They could also opt to hold onto most of their shares in anticipation of greater gains over the long term.

That said, the unique dynamics of SpaceX's situation seem to indicate that investors should expect the space stock to fall quite a bit -- even if the decline is only a temporary one. When as much as or more than three times the stock float potentially comes on the market at the same time, the law of supply and demand works against shareholders. And this week is only the beginning.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.