Jim Chanos Warns AI Sector Faces 2000s Dot-Com Bubble Risk

Legendary short-seller Jim Chanos has issued a warning about the potential for a pullback in the artificial intelligence (AI) sector, drawing parallels to the dot-com bubble of the late 1990s. Chanos, the founder of Chanos & Co., compared the current dominance of AI companies to the networking giants of the 1990s, such as Cisco and Lucent, whose stocks soared as companies upgraded their systems to handle the new internet age.

During a live recording of the Odd Lots podcast in New York, Chanos cautioned that a potential slowdown in demand from corporate customers for AI-related goods and services could lead to a contraction in both corporate earnings and economic growth. He highlighted the risk that customers spending billions on data center space and semiconductors could unexpectedly curb their capital expenditure, similar to what happened to companies like Cisco and Lucent during the Technology, Media, and Telecommunications (TMT) bubble in the early 2000s.

Chanos pointed out that with signs of a slowdown in the labor market and potential disruptions from tariffs, big corporate customers might cut back on their spending plans. He emphasized that the AI ecosystem, much like the TMT bubble, is considerable but riskier due to the ease with which capital expenditure (CapEx) can be pulled back. Projects can be put on hold for extended periods, immediately affecting revenues and earnings forecasts.

Chanos acknowledged that the market is not yet at the point of a pullback but warned that this risk is often underestimated. He also criticized the proliferation of Bitcoin treasury companies, which raise money to buy and hold the cryptocurrency. Chanos has been in a high-profile dispute with Michael Saylor, founder of Strategy, over the value of the company. Strategy’s market cap of over $100 billion far exceeds the roughly $60 billion value of the cryptocurrency on its balance sheet.

Saylor has justified Strategy’s valuation by arguing that the company’s ability to raise funds at a premium means its business model is “risk-free.” Chanos, however, described this as “financial gibberish,” highlighting the absurdity of terms like “Bitcoin yield.” He drew a parallel between Tesla Inc., whose stock he has previously shorted, and Cisco during the dot-com bubble. Chanos noted that Tesla is often seen as a company onto which investors can project their hopes and dreams, valuing it accordingly.