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Investing.com -- Prominent short seller Jim Chanos is sounding alarm bells about the current financial cycle, describing it as "pretty extreme" after 16 years of bull market conditions in credit and equities.
Chanos, Managing Partner of Chanos and Company, compared today’s artificial intelligence capital spending boom to the internet buildout of the late 1990s, calling AI "the displacement idea of this cycle" similar to how the internet dominated the 90s tech landscape.
Speaking on Bloomberg TV, the veteran investor expressed particular concern about the massive capital requirements for AI infrastructure, which he suggests far exceed the approximately $100 billion in vendor financing during the dot-com era. He highlighted how major tech companies like Nvidia and Microsoft "seem to now be willing to do anything to get the actual equipment off their books" through innovative financing arrangements.
"I think they are concerned about depreciating lives and some of the accounting on this, as well as just the immense capital needs they don’t want to put directly on their balance sheets," Chanos explained.
He pointed to OpenAI as an example, noting the company is expected to generate $13 billion in revenue this year and $30 billion next year, yet faces "capital spending needs in the hundreds of billions of dollars."
Chanos, who teaches a course on fraud history, warned that extended bull markets typically lead to reduced standards and eroded skepticism among investors. He identified early warning signs in areas like subprime auto loans and called the First Brands case "mind-blowing, given what they were hiding."
When asked about his short positions, Chanos confirmed his firm has not covered any of their shorts, though he reserved the right to change their approach. Regarding MicroStrategy, he noted they’ve maintained their position against the company, describing the premium at one point as a staggering "$50 billion or $60 billion."
Chanos also expressed concerns about Carvana, pointing to "lots of red flags" including the company’s reliance on subprime auto loans. He questioned how Carvana appears unaffected by rising delinquencies and bankruptcies in the subprime auto space.
Despite these warning signs across markets, Chanos noted that credit spreads remain at "almost record, record lows," suggesting investors are still optimistic without recognizing potential problems ahead.