The founder of Chanos & Co. likened the dominance of AI companies to networking giants such as Cisco and Lucent which characterized the market of the 1990s and saw their stocks soar as companies upgraded their systems to handle the new internet age. At a live recording of the Odd Lots podcast in New York, he cautioned that a potential pullback in demand from corporate customers for AI-related goods and services could spark a contraction in both corporate earnings and economic growth.  

The risk is that customers who are spending billions of dollars on everything from data center space to semiconductors could end up unexpectedly curbing their capital expenditure. In the early 2000s, at the height of the Technology, Media, and Telecommunications (TMT) bubble, companies like Cisco and Lucent saw their massive order backlogs suddenly evaporate and their valuations plummet.    

Now, with some signs of a slowdown in the labor market and potential disruptions from tariffs, it’s possible that big corporate customers cut back on their spending plans once again.

“There is an ecosystem around the AI boom that is considerable as there was for TMT back in ‘99 and 2000,” Chanos said. “But it is a riskier revenue stream because if people pull back, they can pull back CapEx very easily. Projects can get put on hold for six months or nine months, and that immediately shows up in disappointing revenues and earnings forecast if it happens.”

“We’re not there yet, but that’s one of the risks out there that I think a lot of people are underestimating,” Chanos said.

As stocks surge, Chanos has been warning of other market absurdities including the proliferation of Bitcoin treasury companies which raise money to buy and hold the cryptocurrency. He’s been beefing with Michael Saylor, founder of Strategy, in a high-profile dispute over the value of the company. Strategy’s market cap of more than $100 billion far outstrips the roughly $60 billion value of the cryptocurrency on its balance sheet.

Saylor has justified Strategy’s lofty valuation by arguing that the company’s ability to raise funds at a premium essentially means its business model is “risk-free.”

“There’s a wonderful sales job that’s being done about the fact that this is an economic engine in and of itself,” Chanos said. “And so therefore, terms like ‘Bitcoin yield’ are used and I’ve called them financial gibberish because they are.”

When asked for his thoughts on Tesla Inc., whose stock Chanos has previously shorted, he drew on the Cisco parallel once again. 

“There’s always one stock in every bull market that has that, at least that imprimatur of, I call it hopes and dreams,” he said. “Everyone can really project their hopes and dreams onto that company and then value it any way they want. And Cisco was that company, by the way, in ‘99. And [now] it’s undoubtedly Tesla.”

“You could see Elon robbing a Brinks truck with a mask on or whatever [and people would say] ‘Oh, that’s Elon. I’m sure they’re going to have a new business of robbing Brinks trucks. And we’ll put a trillion [dollar] valuation on that,” he said.