Chanos Calls SpaceX's Valuation 'Hopes and Dreams'

While SpaceX is readying itself for what promises to be the biggest offering in history, one of Wall Street's most vocal critics asks an interesting question: Does the company deserve what investors are paying for?

A Veteran Short Seller's Warning

The high-stakes IPO of Elon Musk's space company, SpaceX, is being driven by ‘hopes and dreams,' warns prominent short seller Jim Chanos, who has been targeting the company since it was founded.

At an iConnections conference in New York on Wednesday, Chanos said he believed it was "not worth, in my opinion, $1.75 trillion based on any reasonable assumptions over the next five years.

SpaceX was scheduled to list on New York's exchange on Friday to sell $75 billion worth of stock at a valuation of $1.75 trillion, more than three times the Saudi Aramco listing that took place last year. Reported by MarketScreener

A "Different Animal" Than Tesla

SpaceX is "a different animal" than Tesla, as the space company is being valued at 90 times sales, whereas Tesla is 14, Chanos said. For SpaceX, he noted, the annual revenue is approximately $19 billion and the free cash flow is still negative, making it hard for him to justify a company’s valuation of nearly 90 times its revenue.

In bull markets, "you can build whatever stories we want to justify the valuation," Chanos said, adding that "in bear markets, you put a discount on reality. Yahoo Finance

Questions also are raised about data centres

The measured economist also questioned the overall economics of the data centre industry, describing it as a "bad business with low-single digit ROI" and adding that he's been bearish on the data centre operators since 2022.

He stated that the current operators and newer “neocloud” operators are more like real estate or equipment leasing businesses – because of the significant depreciation risks and the lack of pricing power when it comes to renting out high-end chips to large cloud customers.

A Divided Wall Street

Chanos is not the only one who is skeptical. Morningstar analysts also had similar concerns in a note this week, which valued SpaceX stocks at $63, or about 53 percent below the offer price of $135. Seabreeze Partners Management president Doug Kass valued it at around 50 percent discount, just below $70 a share.

But not everyone is as cautious. SpaceX's stock was covered by Oppenheimer with an "Outperform" rating and a $195 price target, suggesting about a 44 percent upside from the offer price.

Among short sellers, there are caution signals to be heeded

However, with the governance issues and valuation doubts that have led several analysts to call out SpaceX as a short to be made, there are still several short sellers out there who are not ready to take a shot at the company, waiting to see which way it goes, especially as investors get excited about the listing.

The Bigger Picture

The valuation controversy comes at a time when the offering could help bring Elon Musk into the ranks of the world's trillionaires, reflecting the prospect of a historic event in a single share offering that could be held as a bellwether of disagreement about the value of technology companies, and especially those associated with less certain future markets.