Transcription
This is indeed an honor joining us now. He's been extremely active on Global Wall Street in the last 4 or 5 days. James Chanos is with us and company definitive on the street of a cautious view. Jim Charles, honored to have you here. Let me just cut to the chase. What is this distinctive feature that makes space X remind you of Enron?
Well, I don't know that it reminds me of Enron, Tom, but it reminds me of the Enron time frame I sat in that I've always said that Wall Street has a printing press, too, just like the fed. It just takes a while to get going. And one of the things that I think SpaceX is ushering in in 2026 is massive equity issuance. And and historically, without a doubt, in the 20th and 21st century. Any time you have seen massive IPOs and secondaries relative to the size of the market or the economy, investors generally have been advised to to be a little more cautious or reduce the risk so that 1999, 2000, um 2021 for the first half of that year. Uh, in during the meme stock and Spac craze, we are now going to break records in 2026 for IPOs and secondaries. Um, and SpaceX, of course, is the granddaddy kicking it all off in a big way. But we're going to see OpenAI anthropic and probably some others. So we're going to shatter records. And so it's telling you that the the right now is supply is meeting demand. Um, which we haven't seen, by the way, in 23, 24 and 25, but we're seeing it now in 26.
I looked in channels at this, and we've had a wonderful amount of time here with Mr. Chanos. So much to talk about. Scarlet's got some themes. I have some themes as well. Ed Ludlow fronted me. You see how he did that? It's. I just stole my thunder. It to do it. Chanos is thinking about the Nio cloud. This is the team here. Uh, the New York Times article of a day or so ago. Is space worth 1.8 gazillion dollars. XII seems to be suddenly changing its business model from developing models like grok to basically becoming an Ed Ludlow neo cloud. The entire valuation rests on XYZ progress. The Neo Cloud strategy is a commodity business that is valued far lower on the public markets. Jim Chanos to Isaac and the crew over at the New York Times. They're talking innovation, but you're predicting they'll go safe.
Well, what's what's really interesting, Tom, is that about a week, ten days ago, um, the vast driver for the space X, uh, Tam in their prospectus was the enterprise solutions for X. I basically grok what what what the models produce. Write the software. And instead they basically did a 180 pivot and said, we are going to lease out our capacity to anthropic in Google. And that's the NIO cloud model, right? That's your equipment lessor. And that is a much lower valued business in the marketplace than being a model company or a hyperscalers. And we've been following data centers for a long, long time. And basically it's a finance business, right. You're buying the chips from Nvidia or somebody else and then you're leasing them out to anthropic or whatever. It's a rate of return business. It's not a super high tech business yet. 22 plus trillion of the 29.5 trillion of of space Tam in their prospectus was based on that business. And it just struck me as very, very odd that that right before the IPO, they would pivot to a much lower margin and lower valuation business. Then the hopes and dreams which we you guys have mentioned, I've mentioned based on producing these wonderful AI agent genetic, the software, uh, products from grok and it it's one of many head scratchers about this deal.
At what point does financial reality, the kinds of things you were just talking about, breaking down the numbers, become more important and matter more than the storytelling, the hopes and dreams part of it, because that's what Elon Musk excels at, and that's what people are buying in on. So the question is, is this the Elon premium? Is it Elon Premium Times two or Elon Premium divided by two. I think that that's that's really the question here, because there are people who believe in Elon and a bit of Tesla accordingly to well beyond where I think most fundamental analysts think it's worth because of Optimus robots and autonomous driving and all that good stuff. And now you have another Elon Hopes and Dreams company with an even bigger valuation. Um, and so is that does that double double the value or does it basically say, okay, well I'm going to pick one. Um, because neither of them, let's face it, are being valued on their operations. SpaceX is, I believe, depending on what I heard in the green room is probably now at about 110 times revenues. And just history tells us you just never really make much money buying equities at over 100 times revenues.
Yeah. Well, you as we know, are inherently skeptical. Your company names can of course a skeptic. You're not being a bull on SpaceX or Tesla or Elon Musk completely tracks. Is there anything in the SpaceX financials or Musk's management of the company that does impress you that you can say good job on? Look, I think starlink's a real business. Um, we can look at their businesses again. We have to go in. What's in the prospectus? Starlink's real business. It's growing. Um, it will probably continue to grow. Although its growth is slowing. The launch business is still losing money after 22 years. And. And I'd be remiss for my fellow glass half empty, uh, you know, participants, if I didn't point out that the rocket that all of this depends upon, Starship still has not achieved Earth orbit in 12 missions, and half of those ended up with some sort of mishap. So there's a lot riding on all of that. I think Starlink is a real business. It's it's worth a couple hundred billion dollars. But but the real the real hopes and dreams here is on Zika, which is, by the way, a company they bought in February for 250 billion in stock that the market is now valuing it probably well over, you know, trillion and a half dollars.
Bloomberg Television on Bloomberg Radio worldwide with us, Jim Chanos. He could join us today in this historic moment for his Wall Street and all of us around the world. So the short crew is said Tesla, Tesla, Tesla, someone like space X, and I'm enjoying a 53% per year return since sort of the beginning of Covid. You know, back six years or so. So, you know, again, Tesla has done better than good. And there's a lot of negative free cash flow right now. How long can the optimists of space X keep this going without delivering a more conventional income statement.
Well, I think you answered the question right. Years have passed, if possible, but but Tesla is trading at about 14 times revenues, right? It does have 100 billion in revenues. And it ramped revenues pretty quickly in 2019 and 2020. Um, so so there is a real business there in terms of large amounts of revenues and some cash flow. Um, it's not trading at 110 times revenues, and that's a magnitude of difference. I think that's really important for your viewers. I've got just for the first time I've ever looked, the same BQ function. Yes, on the Bloomberg and of course, chinos and nails the price to sales because you studied Tom Golden years ago. I've got well, right now, I've got a number of 27 times revenue and the BQ skewing it maybe a little higher than that. I've never seen a stock like that.
So that I mean, I'm glad you guys bring up Tesla because there's this expectation that Tesla and SpaceX will somehow merge or will be combined in the same way that Zion Space X got combined and merged. How are you thinking through that? What does that mean for investors who believe in Tesla business but are skeptical of SpaceX?
Well, again, if it happens and I have no idea if it will happen. Does Elon need to make it happen? No, he doesn't need to make it happen. He can keep them separate if he wants to. It's solely up to him. We all know that. But it would be an equity for equity deal. And so I don't know you know how much value that would add uh, in terms of, uh, cutting overhead is not the story here, right? It's really it's really what these companies will produce in the next five, ten years.
I look at this Jim Shane house is a historic moment. And the answers to the cycles that I opened up, talking about Enron and all that, I want you to talk about the short business right now is a hugely important part of financial society in this great bull market we're in right now. There's a lot of scars out there. How do you keep that going when you see space right now? How do you keep a short model going with both sectors and a trend in the broader market?
So through 2023 we're running outside money. Now. We run our own money. Um, we've been hedged in the short world since 1996. Basically, our view has been we don't know where the market's going. Nor does anybody else. So we'd rather be long the market and short our collection of radioactive companies, if you will. And that's been a very profitable business. And it's been a very profitable business for the last few years too. Despite the market hitting new highs, because there have been a lot of stocks, as you guys know, that have lagged dramatically. So our view is always be long the market and be short some percentage of of you know, companies with businesses. And I think that's nothing I would recommend your viewers to do at home. All right. I don't don't recommend short selling for for most people it's really for the pros for lots of reasons. Things like getting an interest rebate on your shorts and a variety of other things. But I will say that that one of the things right now that is very apparent is that insurance is cheap and it's cheap for all the reason.
I don't want to interrupt escala. I want to get four more questions in is space radioactive? I think we'll have to see where it settles out. You can't short it right now anyway, so it's a moot question. I mean, I think that that anything trading over 100 times revenues is over our interest. Historically, returns have been awful at those valuations. You mentioned earlier the.com bubble. Are we doing.com bubble 2.0 right now.
Oh this is much bigger. The I the air build out relative to the TMT build out of 99 2000 is multiples even as a percent of the economy uh GDP. Um and an important thing to point out is that when you get these CapEx booms in technology, they're tremendously accretive to earnings. And there's a simple accounting reason why that is. When Tom buys chips for his data center from Nvidia, and Nvidia recognizes that as revenue and profit, Tom capitalizes those expenses and writes them off over 5 to 10 years. And so you have a mismatch where the same dollar in a CapEx boom is recognized as profits by one entity and deferred by the right, the same people are spending the dollar. And that happened in 1998 and 99, 2000 from the middle of 98. S&P operating earnings rose 30% to the middle of 2000. Over the two years, from the middle of 2000 to the middle of 2001, when order books got pulled, S&P earnings dropped 40%. Was that too much accounting for Friday? I think so. I'll tell you. I'll leave that. I'll stop at that.
Jeff, let me ask you one last question before we let you go, because this is Bloomberg money after all. How do you approach your own financial planning? How does it compare with how you advise or manage money for others?
Well, it's mostly in my business and in ancillary things. Since I'm semi-retired right now and I'm advising people not not directly running their money. So it's pretty conservative, but but, uh, so you set forget or you do make a lot of changes. It's mostly passive. Again, for most people, I think that's the way to go.
Jim, I thought we got our merch over here. Scarlett's got her Knicks jacket, and you're ready to go? Let's go. Next. My Annmarie Horden are going to San Antonio. Why are we seeing you in the front row quickly here?
Well, first of all, I live in bucolic Bucks County, Tom, so I'm outside of Philly. So you're doing a 76 for. Secondarily, my sons who are born in Manhattan are diehard fans, but I'm a Milwaukee bucks fan. I'm a cheese. Anyway, it was good to hear that you said to get that for the record as well. Jim, thank you so much. Thank you guys so much. Thank you so much for having me.