«Many underestimate the risk»: legendary shortstop Jim Chanos predicted the AI boom's decline

Shares of companies capitalizing on the artificial intelligence boom are approaching a possible pullback, warned Jim Chanos, a legendary short-seller who bets on falling stock prices. According to him, the market is now underestimating the risk that large corporations may abruptly start cutting capital spending on AI due to economic instability. The investor also ironically commented on the market's attitude toward Tesla and its market value, epitomizing investors' «hopes and dreams.»

Artificial intelligence stocks are close to a potential correction, warned legendary short-seller and Chanos & Co founder Jim Chanos in a statement to Bloomberg. Chanos said the euphoria around AI pushing the market to new highs is reminiscent of the 1990s boom, when the securities of networking giants soared amid a massive shift to the Internet. Companies like Cisco and Lucent had a lot of corporate orders back then, but it all evaporated, and their stocks fell in value, in the early 2000s - after the dot-com bubble burst.

Right now, Chanos believes, AI infrastructure providers also have too high a dependence on corporate demand. With signs of a slowing labor market and likely losses due to import duties, it's possible that large corporations will similarly begin cutting back on their multibillion-dollar spending plans, Bloomberg writes. This would reduce both profits and economic growth, Chanos warned.

«There is a powerful ecosystem around AI, as there once was around TMT (technology, media and telecommunications. - Oninvest) in 1999-2000,» the investor said in a Bloomberg statement. - But revenue is more risky here: if corporations suspend capex for six to nine months, it will immediately affect [AI companies'] sales and profit forecasts. It hasn't happened yet, but it's one of the risks that a lot of people are clearly underestimating.

In contrast to Jim Chanos, Wedbush analyst Dan Ives is positiveabout the prospects for AI. Ives called artificial intelligence «the most sweeping technological revolution in 40 years.» He predicted that the AI market will grow to $407 billion by 2027 and $1.81 trillion by 2030, with an average growth rate of 36% per year. According to an estimate by MarketsandMarkets, the market will reach $2.4 trillion by 2032 at an average annual growth rate of 30.6%.

The research company IDC also gave a positive forecast in April. It estimates that every new dollar spent by companies on implementing AI-based solutions and services will generate an additional $4.9 in the global economy. By 2030, AI technologies will provide it with a cumulative impact of $22.3 trillion, or about 3.7 percent of global GDP, IDC predicted. «Continuous AI-driven business innovation and accelerating adoption of AI agents are driving growth in direct investment in infrastructure and software, as well as generating significant indirect costs across the technology supply chain,» explained Rick Villars, vice president of global research at IDC.

But Morgan Stanley analyst Lisa Shallett warned in late Mayabout slowing revenue growth at key tech giants. She said the AI capex race has already cut free cash flow by 11%, and a «wall of uncertainty» still looms over the AI field, especially in terms of competition. Shallett also recalled the furor caused by Chinese startup DeepSeek, which showed that international AI competition is on the rise. According to her, this sent a strong message: the world of AI is not only developing in America, and no one knows how this race will end. Convinced that the AI stock rally is losing momentum, Shallett suggested investors lock in profits in the tech sector and look to the financial sector, energy and select healthcare companies.

Chanos also used the Cisco analogy in response to a question about his attitude toward Tesla stock, on whose decline he has bet in the past, Bloomberg reports.

«In every bull market, there's always one stock that, as I call it, represents all of [investors'] hopes and dreams,» he said. - Everyone can project their hopes and dreams onto that company and value it the way they want to. By the way, in 1999, that company was Cisco. Now it is, without a doubt, Tesla,» Chanos said.

The investor also commented on the attitude of investors towards the figure of Tesla CEO Ilon Musk:

«Even if you saw Ilon robbing a collection truck wearing a mask or something like that, [people would still say]: 'Well, that's Ilon. They're probably going to have a new business robbing cash collectors. Let's value it at a trillion dollars,'» noted Chanos.

This article was AI-translated and verified by a human editor