Famed short seller Jim Chanos has a new industry he’s targeting with bets against a high growth area. Here’s why, despite the growing industry, Chanos sees pain for the market leaders.
What Happened: Chanos is getting ready to place a big bet against data centers, according to a report from The Financial Times.
Chanos is seeking to raise “several hundred million dollars” for a fund that would go short in several U.S. listed real estate investment trusts in the data center market.
“This is our big short right now,” Chanos said. “The story is that although the cloud is growing, the cloud is their enemy, not their business. Value is accruing to the cloud companies, not the bricks-and-mortar legacy data centers.”
Mentioned in the article are Digital Realty Trust DLR and Equinix EQIX.
Chanos doesn’t see growth of data centers slowing down, instead citing customers of data centers building their own data centers in the future.
“The real problem for data center REITs is technical obsolescence. Their three biggest customers are becoming their biggest competitors. And when your biggest competitors are three of the most vicious competitors in the world than you have a problem.”
Chanos names Amazon.com Inc AMZN, Alphabet Inc GOOGGOOGL and Microsoft MST as the three biggest cloud providers and companies that could build their own data centers.
The short seller also calls the data center REITs overvalued and says they could see declining revenue and earnings growth.
Related Link: Famed Short Seller Jim Chanos Targets Coinbase
Why It’s Important: Chanos has often bet against stocks or sectors and has had a series of wins in his short picks. The investor is best known for predicting the collapse of Enron previously.
Chanos also made $100 million from shorting payments company Wirecard in 2020, before the company filed for bankruptcy.
One short position that didn’t work out as well for Chanos was one in Tesla Inc TSLA, a stock that is up since Chanos shorted it.
A more high profile short position in 2022 was Chanos calling out the valuation of Coinbase Global COIN.
Chanos has compared the current stock market to “the dotcom era on steroids.”
The investor is up around 30% in 2022 according to the report, citing a fall in Coinbase and online used car company Carvana CVNA.
Chanos calls it a great time for short sellers.
“We’ll be feasting on the returns of these stock ideas for years – very similar to the post-dotcom era.”
Photo: Created with an image from Asia Society on flickr
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