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A legendary short seller Jim Chanos is sounding the alarm on the boom infrastructure AI, warns that oversight of critical accounting regarding Nvidia Corp. (NASDAQ:NVDA) chips pose a “massive financial risk” to the sector’s aggressive spenders.
In a recent podcast interview, Chanos argued that data center operators, specifically Oracle Corp. (NYSE:ORCL) and a “neocloud” provider. CoreWeave Inc. (NASDAQ: CRWV ), are underestimating their future profitability by relying on unrealistic depreciation schedules for their artificial intelligence (AI) hardware.
The heart of Chanos’ bearish thesis is the estimated lifespan of the graphics processing units (GPUs) powering the AI revolution.
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While hyperscalers and neoclouds typically depreciate these expensive assets over six years, Chanos claims that Nvidia’s relentless pace of innovation makes them obsolete much faster.
He noted that rental rates for Nvidia’s “Hopper” chips have already dropped roughly 28% year over year as newer models hit the market. If the useful economic life of a chip is closer to three or four years rather than six, companies must drastically increase their annual depreciation costs, which crushes reported earnings.
“If the chips last for three years, you have to depreciate a third of what you spend,” Chanos explained. “This is the bet you should make if you’re a CoreWeave investor.”
Benzinga reached out to Nvidia for comment on Chanos’ claims about GPU depreciation schedules and the useful life of its chips, but had not received a response at the time of publication.
Chanos singled out Oracle as the most vulnerable of the tech giants. He noted that, unlike Microsoft Corp. (NASDAQ:MSFT) or Meta Platforms Inc. (NASDAQ:META), Oracle is currently not earning its cost of capital on its massive investments in AI.
He described the company’s aggressive spending as a “bet the company” strategy that leaves little room for error.
“If the monetization of AI is pushed out … to 2030 or whenever, then Oracle will have fundamental financial problems,” Chanos warned.
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The investor views the current cycle as potentially riskier than the Dotcom bubble. In the late 1990s, companies buying telecommunications equipment were similarly profitable giants General Electric Co. (NYSE:GE) and AT&T Inc. (NYSE:T).
Today, the primary customers driving demand for computing—startups like OpenAI and Anthropic—are burning cash.
If venture capital funding dries up or sentiment changes, Chanos predicts that the order books for companies like CoreWeave could quickly evaporate, leaving them with massive debts and outdated hardware.
While shares of NVDA have advanced 27.46% year to date, the Nasdaq 10 has delivered a gain of 19.51% in the same period.
On Monday, Nvidia shares closed 0.73% higher at $176.29 apiece. The stock advanced 21.84% over the last six months and fell 5.53% in the last month.
It maintains a weaker price trend in the short and medium terms but a strong trend in the long term, with a poor value rating. Additional performance details, as per Benzinga Edge Stock Rankingsare available here.
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This article Nvidia depreciation time bomb: Jim Chanos Warns of ‘Massive Financial Risk’ For CoreWeave, Oracle originally appeared on Benzinga.com
