Renowned short-seller Jim Chanos is warning of potential overbuilding in the data center sector, drawing parallels to the 2000 fiber optic bubble, even as tech giants Microsoft Corp. (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) Google announce massive expansion plans.
What Happened: In a recent exchange on X, Chanos challenged industry optimism about data center growth, particularly amid the artificial intelligence boom. "I can still hear the fiber optic cable guys saying demand was 'infinite' in 2000, because internet traffic was doubling every quarter (it wasn't)," wrote Chanos, referencing his experience teaching about the WorldCom case.
The warning comes as Microsoft plans to spend $80 billion on AI-enabled data centers in fiscal 2025, with over half allocated to U.S. projects.
Amazon is simultaneously developing its Trainium 2 AI chip to compete with Nvidia Corp. (NASDAQ:NVDA) in the $100 billion AI chip market, while Google has committed to significant data center investments globally, including an $850 million facility in Uruguay.
I can still hear the fiber optic cable guys saying demand was "infinite" in 2000, because internet traffic was doubling every quarter(it wasn't).
— James Chanos (@RealJimChanos) January 5, 2025
Internet usage was roughly doubling every year, not every quarter. So 2x annually, not 16x. See Andrew Odlyzko's fabulous papers on this subject. I teach this as part of the WorldCom (they were making the quarterly claim) case in my course.
— James Chanos (@RealJimChanos) January 5, 2025
Chanos, who gained prominence for predicting Enron's collapse and recently announced the closure of his hedge funds, noted that while industry experts cite various constraints on data center development, "the spending keeps increasing."
He referenced research showing that historical internet usage doubled annually rather than quarterly, suggesting a potential disconnect between infrastructure buildout and actual demand growth.
Why It Matters: Brad Johnson, a market observer, acknowledged potential overspending in the current cycle but pointed to unique constraints in data center development, including power availability and connectivity requirements. However, Chanos remained skeptical, emphasizing that despite these supposed limitations, capital expenditure continues to rise.
Everyone mentions the "constraints" but the spending keeps increasing.
— James Chanos (@RealJimChanos) January 5, 2025
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