Short Seller Jim Chanos Targeting Data Center REITs
Mark Bauer 07/06/2022
Jim Chanos with Chanos & Company is raising hundreds of millions of dollars to short wholesale data center REITs in a move that could define the future of the data center market. Chanos is known for successfully shorting Enron in 2000. Chanos is worth an estimated 2 billion and in March announced a position to short Coinbase due to a rise in competition.
Chanos claims that "although cloud is growing right now, the cloud is their enemy, not their business" about wholesale "legacy" data centers. He believes that large hyperscale providers, like Google and Amazon, will continue building and outsourcing proprietary data centers instead of using existing ones. This outsourcing provides little return to the outsourcers and creates increased competition for existing wholesale providers.
Although Chanos never explicitly announced which data center REIT(s) he intends to short, following the announcement, Digital Reality and Equinix were in the red on the NASDAQ.
Despite these claims from Chanos, there are still a few things to consider when discussing the wholesale data center market. Wholesale data centers make a good portion of their revenue from colocating, moving in several smaller tenants instead of larger hyperscale tenants. Looking at long-term trends, the colocation and wholesale data center market is expected to stay strong. GGV Capital's Jim Richards said, " It's a very dangerous short because you're betting against a long-term trend." It is also essential to consider that companies that would rather pay to have their data center operations managed rather than "do it themselves" wholesale is a very desirable option. Chanos isn't betting against data centers as infrastructure, he's going after REITs, and whether or not that will play out remains to be seen.
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