"This Is Bigger Than the Dot-Com Bubble": Jim Chanos's Brutal Warning Before the SpaceX IPO

We're going to be doing a $75 billion IPO with a valuation of close to $2 trillion for a company with revenues of $19 billion, negative free cash flow. This is really a hopes and dreams IPO.

you found one.

This is an unprecedented deal. I think that's why it's obviously caught the fascination of Wall Street and beyond — Washington, Silicon Valley. I mean, we're going to be doing a $75 billion IPO with a valuation of close to $2 trillion for a company with revenues of $19 billion, negative free cash flow. So this is really — excuse me — this is really a hopes and dreams IPO. And I think it's an important bellwether for the market as a whole, particularly the tech sector, because if the company is not worth, in my opinion, $1.75 trillion based on any reasonable assumptions over the next five years. This is a company that's being built on the TAM of not only space, but AI. And I think that's what has everybody sort of fascinated, but also a little bit on edge.

I have to see where it trades first. But you know, the idea is that the company is getting a huge premium based on the CEO. We already have a company that's out there in the marketplace, Tesla, that trades on the same premium to the CEO, right? Based on promises like robotics and full self-driving autonomous software. So we have a bit of a template as to what those kinds of things are worth. Tesla trades at, I think, about 14 times revenue based on the promises of the future. If it was trading as a car company, of course, it would be trading at 30 or $40 a share — not $400 a share — but Space is coming at roughly 90 times revenues, which is a completely different animal than 10 to 15 times revenues. So this is, as I've joked, the TAM for Space is infinite, right? So you really can build whatever stories you want — colonies on Mars, factories on the moon, data centers in space — to sort of justify the valuation. But as I think the walk-on video said, you know, bull markets, you put a premium on promises, and in bear markets you put a discount on reality. And right now we're clearly in the former, not the latter.

Lower.

Again, we don't know where it's going to trade. So that's it. I mean, it depends on how far out you think these hoped-for business models — data centers in space, factories on the moon. You can't justify it based on their core profitable business, which is their mobile Starlink business, which has seen slowing growth, by the way, in the past quarter. So you can get to a couple hundred billion dollars on the businesses that exist. Is the rest of it worth 1.5 trillion? And that's where I have some difficulties. I don't know. There should be some premium, but I don't know that it should be a one-and-a-half to $2 trillion.

Yeah, yeah. He also said he was going to be making chips that are a fraction of the cost of Nvidia's chips in a few years, too. So maybe we should be talking about the impact on the chip stocks. Look, data centers in space sounds great. And while the physics are possibly theoretical, the problem becomes you have to get the launch cost down dramatically. Number one, you have to deal with radiated heat, which means the radiators, similar to our space station, have to be enormous relative to the size of the spacecraft. But more importantly, you have to have redundancy and it has to be insured. And the redundancy is the problem because we've been following the data center business terrestrially for years now. But when they were cloud data centers, the old legacy data centers, and it's one of the most capital-intensive businesses around, stuff breaks all the time and has to be replaced — air conditioning, connections, whatever. And if that happens at a critical part in a data center in space, you will need redundancy, right? You will need to move it to another spacecraft, because you can't just send up a tech with some parts, you know, to fix it, like you can on Earth. So there's lots of issues having to do with basic business problems like insurability and redundancy. The other problem, of course, becomes that launch costs aren't anywhere close to low enough to make these economic. And let's face it, the one rocket that all of this sort of depends upon, Starship, has not even [reached] Earth orbit in 12 flights. They're still waiting to get this rocket into orbit. So a lot of this is really, again, similar to our earlier discussion. A lot of this is really, you know, out there a number of years and hopefully everything happens correctly. The problem is you're paying for that now.

I'm bearish on data centers. Yes.

Yeah, I've noticed that. We've been bearish on data centers, let's say, since back in 2022. The data center business is sort of puzzling to us. It's really kind of a bad business. The guys that have been around for a long, long time have mid- to low-single-digit pretax returns on capital. And if you look at now the companies that are building new data centers, a lot of them are the old Bitcoin miners, for example. And then you have the neoclouds, which we'll get into in a second. Again, where we've seen granular data, where they've given us enough data to sort of analyze the real estate aspect of the deal there — mid- to high-single-digit pretax returns on capital. So these are really REITs in the case of the comprehensive data center guys who are building the shell, buying the GPUs and renting them out. If we turn our attention to the neoclouds like Core, it's even worse because those are, when you boil it down, those are equipment leasing businesses, right? They buy a chip from Nvidia, and then they turn around and lease the chip to a hyperscaler or to a pure AI software company like Anthropic or OpenAI. And the bet is on depreciation and whether or not you can get the chips from the supplier. So we were talking a little bit earlier. It gets back to the point that we've made to clients that anybody that's just a middleman in this chain, like the data center guys are, either as REITs or equipment leasing companies, should never trade at higher multiples than the company that controls their supply — Taiwan Semi and Nvidia, AMD and so on. Right. They're price takers in every sense of the word. They're middlemen. And so it's really — we're at the point in the bull market where all of these stocks have gone to premium valuations. And I suspect that at some point in the near intermediate future, we're going to start to get to the point in the market where people are going to begin to really analyze the business models and say, okay, what's special and what's a commodity?

Yeah. So for our clients, we advise a model portfolio, which is a portfolio of 40 short ideas hedged with various different indices. So what I would say, Natalia, is that what's happened in June so far has been kind of the April-May movie in reverse, in that all of the stocks that hurt us on the short side in April, May — AI stories, data centers, neoclouds, whatever — those have actually gone down and have been helping us on the short side in June. And the more defensive areas we were short — consumer, healthcare — those areas have actually been going up in this decline. So to me, as just an observer of the market for 40-some years, it looks like a rotation where money is coming out of the previous hot area of the past few months and is going into the neglected areas. So again, it's sort of a bifurcated market depending on how you're positioned. And we have short positions in both. So we don't want to be all tech or momentum or all consumer or healthcare. So it's been fine. But I think that's what's been interesting about the last couple of weeks in this selloff. It's clearly the stuff that was doing the best off the March bottom.