“Dr. Doom” has found a new short target – traditional data centers.
Jim Chanos is a well-known Wall Street bear, also known as “Dr. Doom”, who is known for accurately predicting the collapse of US energy giant Enron two decades ago.
Recently, Chanos was poised to short traditional data centers, which are now facing increasing competition from the three tech giants.
Chanos warned that the three largest cloud service providers, Amazon AWS, Google Cloud and Microsoft Azure, have long been the biggest customers of traditional data centers, and now they have become the most formidable competitors. He says:
The real problem with traditional data centers right now is technology obsolescence. It’s worth noting that you’re in trouble when your biggest rivals are the three toughest competitors in the world.
Chanos noted that the three cloud service giants currently prefer to create data centers from their own designs rather than leverage existing ones. “Even if they choose to outsource, the remuneration offered to partners will be low.”
It is worth mentioning that Chanos is currently raising hundreds of millions of dollars for a fund that will short U.S.-listed real estate investment trusts (REITs). Chanos said:
I think REITs are overvalued and are now entering a phase of declining revenue and earnings growth.
Chanos also said that while cloud companies are growing, they will be the enemy of the data center, not the latter’s business. “The accumulation of value is in cloud companies, not in physical data centers.”
Data centers house a large number of servers and network equipment, and groups such as Digital Realty Trust and Equinix have such large data centers. And growing demand for data centers has been a big target for institutional investors.
Last year, private equity giant Blackstone bought U.S. data center operator QTS Realty Trust for about $10 billion in what was at the time the largest deal ever in the data center industry.