All right, guys. Thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live today from the 31st Sohn Conference here in New York City, an annual event that raises money to fight pediatric cancer, and CNBC is so proud to be affiliated with this great cause. We do have an exciting hour ahead of us today, some very special guests. Famed short seller Jim Chanos will join me momentarily right here. Greenlight's David Einhorn, Avenue Capital's Mark Lasry, and the great software investor Orlando Bravo of Thoma Bravo all along in just a bit with their best investing ideas right now.
I'll show you the scorecard here with 60 to go in regulation, because the market picture has changed a little bit at least. The Dow has gone green. Elsewhere, we are struggling a bit as we do begin this final hour. That hotter-than-expected inflation read is a weight today, especially on the Nasdaq, which is down 1 and 1/4%. We saw the Russell was weaker as well. S&P, Nasdaq have been at record highs, so tech's pulling back a bit, and that's where we do begin this record run for stocks and the takes of some of the world's most notable investors. Let's bring one in. Jim Chanos is the Chanos & Company founder and president. Good to have you back. Welcome.
Tell me, this is your first — was in 2000, your first Sohn Conference. Why, why do you keep coming back?
Well, it's, it's an amazing — and I want to apologize for my voice being out a little bit. It's an amazing conference for an amazing, amazing agency. I've been happy to be involved. I was, I did their first London conference back about 15 years ago, and then did a number of conferences for them 25 or so years ago. So I've always been a part of this, and it's always a great honor.
You surprised me for a moment when you walked over here and said it's a, it's a great environment for short sellers. I'm thinking to myself, what is, what is he talking about?
Yeah, the market recognized that. It's going straight up.
There's been a dispersion. We talked about it in our panel. All three of the short sellers that were on my panel, I believe, are up on their short portfolio on the year, as is our model portfolio for clients. There's been a lot of dispersion. I mean, if you are in AI or data centers or semis, you're struggling. But an awful lot of stocks are flat to down this year, and particularly consumer stocks.
That said, you are short some data center plays.
Why? And now look, I'll just say what they are now. It's Digital Realty and Equinix, names that you have been short for quite some years.
Yeah, yeah. Yeah, I think —
That's against a pretty strong tide, isn't it?
Well, I mean, they're not great businesses. And what we bifurcate our view on AI and data centers is looking at the actual — what the business is. And the actual landlords for these kinds of deals are really not very profitable. They're very low return on capital businesses, very capital-intensive businesses. And they don't grow that fast. They're growing mid-single digits. So the legacy data center companies are a distinct difference from the data centers that are now being built for AI. And let's make that clear. But even in some of the more recent popular stocks, we're beginning to see business models that just don't make a lot of sense. Basically equipment-leasing businesses that are dressed up as AI high-tech plays. And that's where we would tell investors to be a little careful on how they look at: is this really an AI company or is this a real estate company?
You look at the kind of market we're in, and you've seen a lot of pivoting, if you will, to try and become more of an AI company even when you are not and have never been. I can only imagine what went through your mind when you saw Allbirds make the decision and the announcement that they did, and what sort of memories that might have brought back for you?
That brings back the memories of the late '90s, where everyone was basically hammering on a dot-com to the end of their corporate name. And we've now seen that very recently with AI. I think Warby Parker made an announcement that they're going to have glasses that are AI-driven, and so — and we see it in our conference calls in the companies that we do follow. Increasingly, you see mention of AI, trying to burnish the business and the multiple.
Are we rhyming with the late '90s now, or is this time wholly different? I mean, because there are some differences. You've got real businesses versus, you know, certainly questionable ones back then. No revenues, no profits. This is different in some respects, isn't it? Or not?
I'll push back a little bit, Scott, because you have to remember that in the late '90s, most of the spending was being done by enterprises. The amount of spending that was being done by dot-coms and then the CLECs and the fiber guys, which were the three unprofitable business models, was relatively small compared to what AT&T, Merrill Lynch, Bank of America, GM were spending on upgrading their systems. I remember we replaced all our PCs in 1999 because of Y2K. So there was the pull-through for that as well. And one of the things we're telling our clients they have to be careful about is that when you see these massive, massive CapEx booms, it's tremendously profitable for earnings. Not only are the vendors getting premium prices for their products, which is fine, but the buyers of the products are not expensing them. So when Nvidia sells a chip to Microsoft or Google or what have you, Nvidia recognizes revenue and profits. Microsoft capitalizes that and writes it off over five years. And so you have a mismatch in the financial economics of the AI build-out. And that is incredibly positive for profits. The bad news is if it reverses and order books collapse and premium margins evaporate, earnings collapse.
No one knows sort of the answer to that question. And it may — and it may be too early. When you make an analog, I guess, to the later stages of the '90s, you know, I'm wondering what you make of someone like Paul Tudor Jones on the network the other day suggesting that you got another year or two left in this AI-driven boom. You may think that it's going to end badly eventually, but that doesn't stop you from riding the wave of the current boom that we're in. How do you distinguish between —
If you're long or short those companies. If you're long or short those companies.
