Renowned short-seller Jim Chanos says he has come up with a simple strategy on how to approach the AI trade.
In a new Risk Reversal Media interview, Chanos says the AI trade has quietly split into two very different categories, and investors should be careful which side they’re on.
“So the thing we’ve been saying to simplify our thought process on this is if you want to play AI, you want to be long the people who are producing the magic from the chips. You don’t want to be long where the chips reside.”
Chanos says many companies now marketed as “AI plays” are not actually creating differentiated technology, but instead function more like landlords or equipment lessors.
“An awful lot of companies are being lumped in that are AI companies that are either simply landlords, they’re REITs, or they’re equipment lessors. There was a period, it started to bifurcate now, where all of them were being traded at really premium prices, hyperscalers as well as landlords and equipment stores. Now it’s begun to bifurcate, and people are beginning to realize, well, maybe me renting out an old Bitcoin mine to Microsoft for a 5% return on capital isn’t a business I should be paying 50 times cash flow for.”
According to the famed short-seller, CoreWeave (CRWV) is a prime example of a company where chips reside.
“I’ll give you a good example, CoreWeave, which we are short. CoreWeave basically has its assets, GPUs, and they rent the capacity for the buildings, the air conditioning and everything else from other people. So they simply buy the chips for someone and rent them right out.
If CoreWeave, at least based on the September quarter, if CoreWeave depreciated its GPUs over 10 years, not five, not four, not six, 10, they would be unprofitable.”
While Chanos did not specifically name firms where the magic is produced, some of the chipmakers that have been on the up and up include Nvidia (NVDA), Micron (MU), Intel (INTC) and AMD (AMD).
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