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The legendary short seller Jim Chanos AI is sounding the alarm on the infrastructure boom, warning that a critical accounting oversight Nvidia Corporation (NASDAQ:NVDA) chips create “significant financial risk” for aggressive spenders in the sector.
In a recent podcast interview, Chanos argued that data center operators, in particular Oracle Corporation (NYSE:ORCL) and “neocloud” provider CoreWeave Inc. (NASDAQ: CRWV ), are overstating their future profits by relying on unrealistic depreciation schedules for their artificial intelligence (AI) hardware.
At the core of Chanos’ bearish thesis is the projected lifespan of the graphics processing units (GPUs) powering the AI revolution.
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While hyperscalers and neoclouds typically depreciate these expensive assets in six years, Chanos claims that Nvidia’s relentless pace of innovation makes them obsolete much faster.
He noted that the rental rate of Nvidia’s “Hopper” chips is already about 28% year-on-year with new models entering the market. If a chip’s useful economic life is closer to three or four years instead of six, companies must increase their annual depreciation expenses sharply, which crushes reported earnings.
“If the chips last three years, you should depreciate one-third of what you spent,” Chanos explained. “If you’re a CoreWeave investor it’s a bet you should make.”
Benzinga reached out to Nvidia for comment on Chanos’ claims regarding the GPU depreciation schedule and the useful life of its chips, but a response had not been received at the time of publication.
Chanos considers Oracle the weakest of the tech giants. On the contrary, he noted Microsoft Corporation (NASDAQ: MSFT ) or Meta Platform Inc. (NASDAQ: META ), Oracle currently hasn’t earned the cost of capital on its massive AI investment.
He described the company’s aggressive spending spree as a “company bet” strategy that leaves little room for error.
“If AI monetization is pushed out until 2030 or whenever, Oracle will have fundamental financial problems,” Chanos warned.
See also: Nvidia and Tesla missing out? RAD Intel could be the next AI powerhouse – invest now at just $0.85 per share
Investors view the current cycle as potentially riskier than the dotcom bubble. In the late 1990s, there were large profit-making companies such as companies that bought telecommunications equipment General Electric Co. (NYSE:GE) and AT&T Inc. (NYSE:T).
Today, the primary customers demanding compute — startups like OpenAI and Anthropic — are burning cash.
If venture capital funding dries up or sentiment changes, Chanos predicts order books for companies like CoreWeave could quickly evaporate, leaving them with heavy debt and obsolete hardware.
While shares of NVDA are up 27.46% year-to-date, the Nasdaq 10 has returned 19.51% over the same period.
On Monday, Nvidia shares closed up 0.73% at $176.29. The stock has gained 21.84% over the past six months and has declined 5.53% over the last month.
It maintains a weak price trend in the short and medium terms but a strong trend in the long term with a weak price range. Additional performance details, as per Benzinga’s Edge Stock RankingsAvailable here.
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The article Nvidia’s depreciation time bomb: Jim Chanos warns of ‘huge financial risk’ for CoreWeave, Oracle originally appeared on Benzinga.com.
