Prominent short seller Jim Chanos took aim at SpaceX’s highly anticipated IPO, warning that the Elon Musk-led space company’s offering is fueled by “hopes and dreams” that don’t justify its astronomical valuation.

SpaceX is set to go public in New York on Friday following an offering to raise $75 billion at a valuation of $1.75 trillion. It is set to be the largest initial public offering, nearly tripling the 2019 Saudi Aramco listing.

“In my opinion, the company is not worth $1.75 trillion based on any reasonable assumptions over the next five years,” Chanos said Wednesday at the iConnections conference in New York.

Skepticism over the company’s targeted $1.75 trillion valuation, along with governance concerns, has led some analysts to view it as a logical short.

However, some short sellers are wary of betting against SpaceX, especially after a recent rally in trillion-dollar technology heavyweights — the SpaceX group could join — has taken a heavy toll on bearish bets.

Chanos echoed the same sentiment when asked if he would short the company.

“We can really make up any number of stories – colonies on Mars, factory – tunnels, data centers in space – to justify the valuation. In bull markets, you put a premium on promises and in bear markets, you put a discount on reality,” he said.

Shorting Musk’s other company, Tesla, is usually a losing bet. On paper, Tesla short sellers have lost $27 billion since June 2021, according to S3 Partners, including directional bets against Tesla shares and index hedges used to account for Tesla’s inclusion in the S&P 500. Over the past 10 years, shares have risen more than 2,500%.

Chanos, however, called SpaceX a ‘different animal’ than Tesla. He pointed out that the space company is valued at 90 times its sales, compared with Tesla’s 14-times multiple.

Data center sector a ‘bad business’

The veteran short seller also cast doubt on the economics of the data center sector, calling it a “bad business” with low single-digit returns on capital.

Chanos is bearish on data center operators through 2022, arguing that traditional operators and emerging neocloud companies resemble REITs or equipment leasing companies rather than high-growth technology plays.

By buying advanced chips from suppliers like Nvidia and leasing them to hyperscalers, these companies face steep depreciation risks and limited pricing power, he said.

Chanos added that such businesses are effectively price takers and valuation multiples should not be higher than semiconductor manufacturers who control hardware supply.

Jim Chanos is a leading American investment manager and founder of Kynikos Associates. A famous short seller, he is known for making accurate predictions and profiting from the collapse of Enron in 2001.