Jim Chanos’s Short Positions Are Doing Well in 2022

Recently, well-known short-seller Jim Chanos revealed his new short positions. How are they expected to pan out?

Chanos founded Kynikos Associates in 1985 with $16 million in initial capital. He's known for anticipating the collapse of Enron, which happened almost 20 years ago. He's a long-time skeptic of the future of the Chinese economy and has bet against the Chinese real estate market.

Most recently, Chanos has been betting against “legacy” data centers. He's raising more than $200 million for a fund that will take short positions in U.S.-listed real estate investment trusts. In an interview, he said, “This is our big short right now.” He added, “The story is that although the cloud is growing, the cloud is their enemy, not their business. Value is accruing to the cloud companies, not the bricks-and-mortar legacy data centers.”

Chanos doesn’t like the declining revenue and earnings growth profile of legacy data centers. Data creation and storage requirements have exploded with the surge in data growth. Amazon Web Services, Google Cloud, and Microsoft Azure, the three biggest cloud providers, have been the biggest data center customers.

Chanos’s strategy of shorting data centers is based on the premise that the tech giants prefer to design their own centers rather than moving into existing ones. Moreover, when they do outsource, they typically offer low returns to their development partners.

After been underwater for the last few years, Chanos’s Ursus fund is up (by about 30 percent year-to-date). His bets against cryptocurrency exchange platform Coinbase and online used car retailer Caravana, are doing well amid the risk-off sentiment created by high inflation and interest rates.

Chanos revealed his short position in Coinbase in March 2022. He had called it a "bubble stock" and believed that as the company's competition grows, it will see fee compression. Cryptocurrencies have had a disastrous 2022, with their market cap as a whole being less than one-third of what it was in Nov. 2021. This has pressurized Coinbase as well.

After hitting record highs, used car prices have also been on a descent. This is impacting Carvana. Chanos’s fund is also short on IBM, as he thinks the company is making much lower EPS than it's claiming. He thinks the company could soon lower investor expectations by 50 percent.

However, not all of Chanos’s short bets have gone in his favor. For years, Chanos has been betting against Tesla stock, but it has soared. Chanos still believes that Tesla could disappoint, as people are banking a lot on its diversification, which might never pan out.