Jim Chanos’ Next “Big Short Right Now” Is REIT-Owned Data Centers
One of the world’s most well-known short-sellers, Jim Chanos, is betting against “legacy” data centers facing increasing competition from technology giants that have been their biggest customers.
Chanos and his firm Kynikos Associates are raising several hundred million dollars for a fund that will place bearish bets on data center REITs.
“This is our big short right now,” Chanos said in a Financial Times interview. “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.”
Chanos’s thesis is that the largest cloud providers, Amazon Web Services, Google Cloud, and Microsoft Azure, are building their own data centers instead of leasing from REIT-owned data centers. He believes many of these REITs are overvalued and are on the cusp of experiencing a slump in revenue and faltering earnings growth.
“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, then you have a problem,” Chanos continued.
Watch Digital Realty and Equinix, as well as data center operators Cyxtera Technologies and Iron Mountain, are ones to watch after Chanos announced his new short thesis. American Tower Corporation is another after it recently acquired CoreSite Realty Corp.
Chanos also spoke about equity valuations. He said, “One thing that amazes me is how sanguine inventors are … People just shrug their shoulders and don’t seem to notice where equity valuations are today versus historically and that there are so many flawed business models. It’s a little bit baffling that no one seems to think they need financial insurance because it’s pretty cheap. It’s another reason to be more cautious — no one is beating down the door of short-sellers these days.”
He said today’s turmoil in stocks could be described as “the dot-com era on steroids” amid the implosion of profitless companies.
Chanos expects more downside in stocks as the market cycle trends lower, noting it will be a rewarding environment for short-sellers: “We’ll be feasting on the returns of these stock ideas for years — very similar to the post-dotcom era.”
Wed, 06/29/2022 – 10:20