What happened

For the week, shares of the artificial intelligence-powered lending company Pagaya (PGY 0.77%) were down by nearly 26% as of market close Thursday, according to data provided by S&P Global Market Intelligence.

That decline is likely due to shareholders preparing for an increase in the company's public float.

So what

Pagaya went public in June by merging with a special purpose acquisition company (SPAC). Its shares initially plummeted -- as did many post-SPAC companies this year.

But in July, Pagaya's registration statement revealed that the company had a tiny public float, less than 1 million shares. Retail investors swooped in and drove the stock up to close to $25 per share at one point.

But this price surge was purely driven by the low float, and it looks like investors are growing worried that the lock-up periods of shares being held by other shareholders such as the founders could soon end, at which point the market could be flooded with more shares.

In a regulatory filing, Pagaya previously said that other stockholders were subject to lock-up periods of between 90 days and one year after the closing date of the SPAC merger. That occurred on June 22, which means the 90-day period will be up on Sept. 20. In addition, it stated that if its shares trade for above $12.50 for any 20 trading days within a 30-trading day period, other shareholders subject to lock-ups would also be able to sell their shares. That too, would increase the float and bring down the share price. Shares of Pagaya have in fact been above $12.50 for the entire last month.

Now what

After reporting a second-quarter net loss of more than $146 million, most of which was due to stock-based compensation, and net revenue of $181.5 million, Pagaya still doesn't strike me as being worthy of its current $9.3 billion market cap.

I expect shareholders are preparing for the lock-up period to end, so more declines are likely ahead for the stock.