Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A6948306487874134016
#DataCenter: The Next #BigShort: #HedgeFund #Manager Jim Chanos: Short seller bets against #REIT’s that own big #server #warehouses on #risks that customers will become rivals: https://lnkd.in/gRfUpQKY:
#Shortseller #JimChanos is betting against “legacy” #datacentres that now face growing #competition from the trio of #tech #giants that have been their biggest customers. Chanos, who remains best-known for predicting the collapse of #energy group #Enron two decades ago, is raising several hundred million dollars for a #fund that will take short positions in US-listed #realestate #investment #trusts.
“This is our big short right now,” Chanos said in an 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 #centres.”
Data centres owned by groups such as Digital Realty Trust and Equinix are vast #warehouses of #servers that power large swaths of the internet. The growth in demand for data centres has been a big theme for institutional investors, who are seeking to tap into the global expansion of #cloudcomputing. Last year $915bn #alternatives manager #Blackstone bought QTS Realty Trust for about $10bn, at the time the largest deal in #datacentre history.
The three biggest cloud providers, Amazon Web Services (AWS), Google Cloud and Microsoft #Azure, are by far the largest tenants of data centres. Chanos’s thesis is that these three “hyperscalers” prefer to build data centres to their own design rather than moving into existing ones; and when they do #outsource, they typically offer low returns to their development partners. Chanos also said he believed that the real estate investment trusts were overvalued and in for a period of declining #revenue and #earnings #growth.
“The real problem for data centre REITs is #technical #obsolescence,” said Chanos. “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.”
#Tech #stocks have been pummelled this year as #investors grapple with higher #inflation and #interestrates. This has been a boost to Chanos, who has described the current environment as “the #dotcom #era on steroids”, luring #investor #capital into lossmaking #unicorns, #SPAC’s special purpose acquisition companies, #cryptocurrencies and non-fungible tokens #NFT’s.
Chanos believes that as the market cycle turns and a sell-off in stock markets continues, it will be a fertile environment for #short #sellers: “We’ll be feasting on the #returns of these #stock ideas for years — very similar to the post-#dotcom era.”
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