Jim Chanos & Val Zlatev: Long and Short Alpha in AI, Semiconductors, Data Centers, Neoclouds, and Data Centers | MacroMinds Symposium 2026

Where's the fine value in the AI boom on the long side and the short side? This is the question that I asked two great investors earlier this month when I had the privilege of hosting Jim Chanos and Val Zlatep. Jim is a legendary short seller renowned for his short positions in Chinese real estate stocks, wire card and of course, Enron. Val manages a multi-billion dollar hedge fund with a sterling track record for alpha generation in long short investing in semiconductors and tech hardware specifically. This was at a panel I hosted for macro mines symposium, a mission-driven conference for institutional investors to support student education. This year's symposium raised money for three beneficiaries, NYC First Opportunity Music project and 100 Women in Finance. Other panelists included giants in the industry such as Apollo's John Zito and BlackRock's Rick Reader. I'm very grateful to macro mines and its founder Dean Kronut for allowing me to be part of it. I've heard information in the description as well as at the end of the interview where I'll also share some closing thoughts. Let's get into it. Please welcome Jim Chanos, Val Zlatep and Jack Farley. Thank you everyone for being here. We've got a very special conversation talking about investing in AI and semiconductors on the long side, on the short side as well. Of course, Jim Chanos of Chanos and company and Val Zlatep of analog central capital management. I want to start just your overall outlook on artificial intelligence and the build out that goes with it. Jim, let's start with you and then Val. Well, as Rick Reader said in the past past, previous panel, I mean, it is dominating everything in the financial markets right now. It's really a unique concept when it comes to particularly equity markets, but increasingly the credit markets as well. And so the really interesting thing is, as you talk to people who are far more knowledgeable about it than I am, and you get many different opinions on where it's going, what's going to happen, and whether there's an ROI at the end of the rainbow. And the answer is nobody knows for sure yet, we're that early on. The one macro comment I'll make since we're at the macro minds is I think people should be a little bit careful about extrapolating much broader impact to global economic growth and earnings growth. We took a look at the decade that preceded the introduction of Metscape in late 95, early 96, to the decade, the 10 years that have been after Netscape, the post internet era, and was not penalized by the GFC, it ended in '06, '07. And US economic growth was virtually the same in the decade before the introduction of the internet versus after the internet was introduced. And interestingly, corporate profitability, which I would have thought would have had a meaningful increase with productivity, did not increase its growth rate at all. It was 6% per year, which is the long-term average, in the decade before the internet versus the decade after the internet. Now of course there's a lot of dynamism in that, and that's a long-winded way of saying there's going to be a lot of dynamism and the winners and losers in the AI economy. But whether it'll contribute to overall economic growth and/or long-term increase in corporate profitability, we're made to be seen. So, I'm not a macro investor and I'm not going to argue about the overall effect on the economy, but from a micro perspective when we listen to the companies, so we talk to the companies that we invest in, and go from the long side and the short side. What we've seen is that the effects of AI on the actual individual businesses are the pretty well seen, and many of the CEOs of the companies that we cover quite excited about it so far. It's very simple to actually just look at headcounts over the last three or four years, compared to the operating profits of these companies, and you will see that the headcount is barely budged for something that is declined, meanwhile the operating profits are dramatically increased. And I'm not even just talking about memory companies that have increased prices, but I'm just talking about a very wide slew of over 500 companies within heart tech. That's my universe is heart tech. So the actual impact is already felt, as we speak, and it's fairly meaningful to the extent that gets transitioned from the early adopters, the technology companies that really adopt it, because they kind of eat their own stuff that is selling, to the rest of the economy to be seen, right? You will see how the whole thing evolves, but the immediate impacts of the day. And in terms of the going forward, I would agree with that there will be many debates, there will be many ups and downs. This is not a situation that everybody has agreed on. You go on Twitter, you go on podcasts, AI lives on these forums, and you will see numerous bears in addition to the bulls. So this is not a one-sided argument. It's probably just as many bears as bulls on the AI argument, which I think is extremely healthy. I love it that there are many, many bears on AI, because it creates a pause, stepping back, thinking, considering it, I suppose, or just going rarer into it, which was kind of more like the '90s, which was kind of a one-sided situation. But if you really want to be scared, I'll tell you that I'm that long AI versus my short. So that's a terrifying call. True. So, Joe, I think you're net-long via the index. So what are you short? And so you're not short the semis, or at least in size, relative to the SME. What are you short? So, we, I mean, we, you know, I'm going to preface comment before I go into that. One of the other things you have to also keep in mind, and we did see this parallel in the late '90s, is when you, these type of tech technology, tech, boom, and there's no doubt in anyone's mind, bulls and bears agreed we're in a tech, boom, in high tech, there is a disconnect in the profitability accounting between the companies that are selling the picks in shovel, in this case, the chips and data center equipment and construction companies what have you, and the companies that are spending those dollars. The companies like Envidia and G. Vernova and the Vertiv and what have you that are building out this giant, the capital intensive business called AI are recognizing revenues and profits immediately. The hyperscalers and others who are spending those very same dollars are capitalizing those costs and that's a really important thing to remember when you're looking at the profit boom that we're seeing in the high tech area right now. We saw this from '98 to '01, from the middle of '98 to the middle of 2000, the earnings peak in that cycle, S&P operating profits went up 30% over those two years, basically going at that clip a little higher maybe even right now. And then does anybody know how fast it dropped from mid 2000 to 2001? >> Fast enough. >> Drop 40%. >> Yeah, yeah. When order books dropped and costs continued and particularly depreciation, but order books collapsed and profitability, the S&P 500 dropped as much in that year, which was a mild recession as it did during the global financial crisis. S&P earnings were down about 40% both periods. So, we really have to kind of watch that. But what we're focused on, Jack, is what we think are inherently unprofitable business models that are attached to this AI ecosystem where any way you kind of look at it on a best case basis, the returns on capital are going to be diminished. So we would look at things like the Bitcoin miners, certain data center developers, even the Neoclouds, where if you make just heroic assumptions on profitability and you give them 10-year life on the chips, you still get 4 or 5, 6% returns on capital in the out years. And I just think that those are going to be win-out away over time. I've joked with my clients that you want to be long with the chips produced, not where the chips reside. I think that's probably still a valid investment thesis going forward. So, I want to talk about the Neoclouds in a moment, but first let's talk about this depreciation question. We're in a CapEx boom. Most of the chips that are being bought are being capitalized so they don't go out of operating expenses. They are capitalized and then they are depreciated away over many years, which is four years, seven years, whatever. So are you saying Jim that the earnings are inflated? I think you did say that. By the fact that the depreciation hasn't hit yet, just when is the depreciation going to hit and how is that going to impact profits? I know Bal has a lot of thoughts on this too. So there's two problems. One is that an awful lot of this capital spending for the people spending the big money like Alphabet and Microsoft and Amazon. a lot of that is going into what's called construction and progress right now. And all of those costs, the cost of the chips, the cost of the labor, the interest cost, all of that is capitalized. It's not expressed until the data center comes online and is producing revenue. So that's an important thing. So, through setting aside the life of the chips themselves, there's now increasingly because of lags, there might be 12 to 18 months where you've spent money on the data center, but it isn't producing revenue yet, and you aren't depreciating those assets. Now, as a cynic on this stuff, in order to be conservative, what we are using in our modeling is 10-year life on the GPUs. There's misconception that I bears are saying, oh, it's two years or three years, we're using 10-year life, which is basically, you running these things 365, 24 hours a day, you're not going to get physical life much more than 10 or 12 years out of them. So, to be safe, I'm looking at business models and assuming that you write the GPUs off over 10 years, I think that's a safe bet. >> 10 years is pretty good, that's a priority. I'm not sure how many GPUs will be there in 10 years from now. Very safe bet, I'm sure. So, I would agree with Chairman, the real bet or the real investment is really the chips or the service or whatever it is, the goals inside the data centers, as opposed to the landlords, as you call it. I think it's actually a very good statement. So, I'm not going to argue that the new clouds are fantastic investments. I think that, from a depreciation perspective, we can focus on depreciation, maybe it's not there, maybe it's six, whatever it is, definitely not two. The reality though is that these chips are so tight, as we speak, that the rental prices for GPUs, which are really all like six, seven, eight years old, are going up in price, as we said. That wasn't the case until December. They started to increase, by the way, into December, these prices were down to 20-30% here and here, which is very normal. GPU rental prices should be going down every year. You have to expect that, you have to build out into your models, because new GPUs, new architectures that come in, which are much more efficient, and the tower per token is much lower for the new GPUs. So, there's absolutely no reason for anybody who has access to new GPUs to even hold it. They should just take it from into the ocean, put new GPUs at the end of the day, because the tokenomics is so much more efficient. The reality though is that it's so tight since January, that now prices are up 40-50% even more, as we said. That definitely changed the economics of the new clouds in the near time. I have no idea that will continue on that. I'm trying to say that this is a very dynamic market. It has changed the valuations of the new cloud. I don't know that they're contracted prices have changed that much. Yeah, because life for scalers aren't themselves. And remember, in this business model, these are equipment leasing company, in effect. If you are taking buying chips from Nvidia, and then renting data center space from somebody else, and then renting the chips out to Microsoft or Google, or you're an equipment leasing company. You're not a high tech company. You're a finance company, in effect. And you're making a bet on the life of the chips and what you can get over the contract. But when some of these companies that are truly, many of them are run by former finance people, the core we've got is the old magnetar guy. You remember from them from the global financial crisis. If Blackstone is in your business, Blackstone just got into this business with a new read. You're in the finance business. And it's a really important point to remember. And always remember that the hyper scalers can buy the chips themselves. They're choosing to rent them from the Neo4. Why? I'm not sure what exactly what he answered is on the Y, but I'll tell you why. The reality is that they will not prepare for it, and you don't have the access for it. And Nvidia wants to create a balance between the hyper scalers in the new clouds, because Nvidia doesn't want to get picked hold on for customers in perpetuity. So they choose to actually feed a competition for the hyper scalers. Hence they give more supply to the new clouds. So they don't want to sell to Microsoft directly. They'd rather sell to core. And say they send to Bob. Jim, what do you think the answer is the answer of why the hyper scalers are spending money via core. We rather than just themselves on their own balance sheet. Well, I think they're spending money on both clearly. Yeah, yeah. They didn't spend money on ball. The amount of money that hyper scalers are spending directly is massive. But again, it's a gold rush, mentality. So whoever has capacity will probably sign a deal. The problem, Jack, is that given that dynamic right now, you should be getting really good ROI's. If you have capacity of a power data center right now, and you have the chip, or someone will bring the chips, you should get incredibly high. Our returns on invested capital right now. This is if not now when, right? And these deals where you get granularity on the deals where they should give you quite a bit. They're working out, penciling out it, 7%, 6%, 5%, 8%, they're all single digit ROIC's pre-tax. And so again, I get back to my point. If that's the best you're going to do now, I'd much rather own other parts of the chain than just the middleman, if you will, the financial middleman. So I would totally agree with you that one thing that you talked about is that you basically classify elements, reads effectively, right? The core waves of the world, whatever it is. There's a real lifting coverage. And it's, I agree with, it's much more about technology at the end of the day. Technology is the ultimate differentiating that game. That's the value that hence the value that is in the chips and the wrappers of the chips that go inside the data center. And so the ton of technology in somebody buying land or having access to grid capacity or putting some productive just formal whatever it is. They can stay in short of for a couple of years and will they will say but eventually the value does move to the technology drivers. I don't think we're going to have power bottlenecks, for example, three years from now. I don't think we're going to have labor bottlenecks three years from now. We may have them for the next 18 months, but ultimately equities are long duration assets, right? So, yeah, you should be looking at the core business over the whole cycle over long long periods of time and pricing and equity of current spot prices in shortage can be exciting and has been, but it can also be valid. So, I'm not going to defend the new the new classes and the ones alongside anyways, but I wanted to make a comment that they're not exactly the same. Some of the risks like equinox or just the real deal with every. Those legacy guys. These are not only the legacy, these are guys that have just shelves, use the customer, bring your own servers, you stick them into a cage and say, thank you. I'll just pay you for the rental and I'll come back in 10 years to change the servers. Call with is actually, maybe especially they actually do have some technology about the only way they buy from me, they do have software layers, they do care for optimization layers. Maybe as for example, doesn't have a hundred percent of their revenue contract without to hyper scours, it's about 50 to 60 percent and the other 40 50 is actually useful influence as we speak. And that's where they can actually price a lot more in a spot because influence adoption right now is the one driving the spot increases and they can pass that through and benefits from it as we speak. So it's not exactly the old down shells, they're definitely some technology, but it's not a technology that's driven by the semi guys. The technology coming from Nvidia or Broadcom or whatever, whatever it is, the StereoLapse, that doesn't matter. That is a light years above the technology being provided by a call with the world. But also keep in mind, this is the technology space and technology can change and we could see inference going to our phone to our desktop. I know that there are people say, no, no, it's not economic and never will be economic, but some of the same people are also then telling me that we're going to put in space. So, you know, let's talk about data centers in space. Jim, do you want to go with the space? I'm sure you have space arguments. What do you want to know about data centers in space? Is it a good idea? Should we be investing in these in data centers in space? We're going to get a big chance next week. There's the only way that that thing works is that there's lots of data centers in space and I'll drive us on moon and colonies on Mars. But anyway, look, so the cost of putting a data center in space are obviously considerable, have a lot to do with launch costs. But a couple of observations knowing the data center space pretty well. Power costs are actually despite the bottleneck power costs are very important. very small percent of data center costs. They're about 5 to 7 percent of revenue. So if you're doing this because the sun is a free source of power, you're starting on the wrong foot. And the power is not problem. And in fact, I think power will be as we discuss less of a bottleneck going forward. So the cost, the other, the big costs in space are radiation because it's hard to radiate in a vacuum. So you, the space station, for example, has these enormous radiators. So that's number one. Number two is radiation itself and complex system exposed to space radiation over long periods of time, tend to break down. But then you get to simpler things like the idea of redundancy and insurance, right? Like if stuff breaks in data centers all the time, if you look even at the simple whole legacy data centers, their capital, their maintenance cap axis through the roof, you know, stuff breaks. The HVAC goes down. This goes down. That goes down. Things are always needing replacing. So you send a tech out with the right part, the right equipment. They replace it and you back up and running. In space, you got to send the lawn, you know, hopefully with a humanoid robotic to do it, but, but you have another launch. And so you begin to get into issues of redundancy, insurance, whatever. And then the cost, whatever cost savings you might be getting begin to immediately erode dramatically. And then of course, there's the problem that the vehicle that the prime, the prime, the proponent of this, that's coming public next week, their starship hasn't made Earth orbit yet in 12 foot. I keep reminding people of that that all these great promises are built on a rocket that has not yet achieved Earth orbit. And it's blown up, I think, six or seven out of the 12 whites. So we'll have to see. You know, obviously it's an amazing story as I said, you know, the, the, the the Tam of space is infinite. It is. So all the space there. So, but yesterday I pointed out, yes, but the Tam of space is infinite versus infinite entropy. You know, so the randomness in space is infinite too. So, you know, it's going to be a tug of war that I don't think anybody has to worry about for the X five, five or six or seven or ten years. Jim, I just want to get your thoughts on the SpaceX IPO. I take it, you won't be a buyer other than via the index. You know, shorting, shorting new issues is, you know, famously quite risky, but the S1 is out. So you, you've had a chance to look at it. How are you thinking about shorting that company, both in terms of, you know, whether you're actually bearish or versus actually putting a position on, which is a completely different thing. Yeah. So, I mean, the numbers don't work on the existing business. Even with Starlink, Starlink is profitable. Starlink is a decent business. It's growth is slow dramatically. They've had to cut price and the perspective says the points that out to drive unit growth. But it's a profitable business, earning about four billion dollars right now annually operating. And we think about 25 to 30 billion of invested capital. So it's a good, it's not an insanely good business. It's a good business. The problem is the launch business still loses money. I was surprised to learn that in the S1. Yeah. The launch business is still losing money after spending billions and billions and billions. And, and part of it is, you know, trying to get starship to work. And also, the launch business subsidizes Starlink. So you have to be a little careful. Starlink may not be as profitable as it says it is because it's getting cheap rates to launch from, from its parent. And then XAI is the wild card, right? It's, I mean, it's losing lots of money. It's spending lots of money. It's cut a very short term deal with anthropic for space, for rental space. But it's just a sinkhole right now in terms of cash. So you have to believe in in Mars and the moon and data centers in space to justify almost two trillion dollars. I mean, it's like Tesla itself, right? Tesla, you can't justify unsettling automobiles. It's all the stuff that's going to come. Like I said, bull markets you know, put a, put a premium on, on forecasts and bear markets put a discount on reality. Yeah. That's the truth. I want to know when you talked about valuing cyclical businesses as if they're secular businesses. You can't just reach out to the space, I think. So putting the IPO aside, I want to push back a little bit on one thing. When Elon Musk is talking about the resistance in space, he's not, he doesn't want to put him there because it's cheaper energy. Of course, it's cheaper, but you're absolutely right. Energy is 5% of the cost of a CapEx. Another 10% is the, the shell and the land and the equipment. 85% is the philosophical insight, the data center, which is basically what we invest in. So it's not about the cost. It's about the amount of electricity or amount of compute heat tanks in his mind is needed. Let me just mentionize it. He was very explicit that he believes that the world of the next several years will need one terawatt of compute capacity in his imagination. Let me just mentionize that. A terawatt is a thousand gigawatts. The amount of CapEx being spent now by the Heppers' Cavers and Oracle's whatever of the world is about 750 billion dollars, which is about 15 gigawatts at the most. So he's talking about a thousand gigawatts versus what is being spend is it which is 15 gigawatts. So he's basically saying, all this stuff right now is kind of a waste of time. It's just jubber jubbering about small amounts of money. It's much bigger than what you'd think. That's why he's going there. It's not a cost. It's the amount that's needed. And by the way, the full grid in the United States is like 1.5 terawatts and you need to have a spare. So he's basically saying, I need a full grid period. That's why I need to go to space. I have no idea how to discount his timelines or ambitions. That's for other people. I'm not sure it's a great idea to be shorting him because he hasn't worked out at full many people over time. What I do know for a fact is that the reason he's saying is he believes there's a thousand terawatts. A terawatts of need for compute is because he doesn't see a break in the basic technological scaling laws in AI that exist. What that really means is scaling laws in AI are the bigger the cluster, the more compute you use to train a code, the better the output, the high the IQ of the code. And everybody is trying to get the high a IQ all the time. If he was seeing a break in that, he would not have even remotely mentioned that he needs a terawatts of compute capacity. He would be like, I already have it all. Some of my stuff is empty anyways. I'm writing it out to ontropicuswisp because my stuff doesn't quite really work out that well. That's the bottom line. It's a technology argument. Well, were you investing in 99? I was in McKinsey then. I was working for this company. And I felt the pain because I was next with CEOs of this conference when they bookings went on the drain. So post-netscape, but really toward 98 and 99, one of the guiding, unending truths of the internet was that traffic was doubling every quarter. An MCI WorldCom, one other way, tell people that I'm quarterly calls. And it was one of the things that just then became embedded in the psyche that the internet was growing so fast you could not imagine because it was doubling with power scale law and even caught coming down. Traffic was doubling every quarter. And so it was very interesting. There was a gentleman from Bell Labs at the time. Anthony and Silco, you can look him up. He put a paper out in early 2000, I believe it was, but he circulated in late '99 and he put it out based on a lot of rigorous data that he looked at. That was really growing fast. It was doubling every year, not every quarter. Still fast, right? And traffic continued to do that for a number of years into 2000s. The problem, of course, was was that everybody was building their business models and order books based on this belief that I can't go wrong. Whenever I spend my money on, he's going to be taken up by internet traffic. So the networking companies, the phone companies, the long-distance. Everybody, the CAPEX boom just accelerated. And then the realization hit in early 2000 that someone had kind of made that up at MCI. Everybody just run with it in the media, whatever. And it's my view having lived through it and seeing, and we were short-lucent in North-O at that time at MCI. Was the order books suddenly collabed as CFOs and CEOs told everybody, okay, we don't need 20,000 routers this year. Just cut our order back to 4,000. And the biggest spenders back then is the myth, by the way, the biggest spenders back then were enterprises. We're big companies like AT&T, Maryland, Spank America, Coca-Cola, who are networking their equipment to talk to each other. And then on top of that, you had Y2K. I know we replaced all of our PCs because we were terrified in the second half of 1999. So I really take a jaundice eye on these forecasts of just immense need for compute at today's prices. It might happen, but history tells us that these kind of insane, exponential growth rates tend to get constrained by the real world. Yeah, absolutely right. I should be taken with a 10-grace of salt, especially normally from Hussmann, that's coming from. A couple of thoughts on, I think we should finish the 99-2000 comparison because that's an interesting comparison. There was like much lower growth than what MSEI or whatever it was talking about. I think you can do quite, quite, yeah. Right now the graph actually can track directly yourself by just looking at the, for example, open-router token counts. You can see the growth of token being tracked, which is a small percentage of the industry token usage, but you can at least see the, as opposed to waiting for some corporate CFO to show up once every three months with a sum that he made up in the back room. So we can track that much more directly. And the reason the GPU rent of prices going up is because the token usage is exploding and they just don't have enough GPUs around the tokens for it. This does mean that we're continuing perpetuity. We can discuss what can break that. But at least with the time being, the real facts are suggesting that you don't need to listen to CFOs. You don't need to listen to some accountants to tell you what the graph is. You can just see it for yourself. And by the way, you can see it in your own usage, in your own offices. So that's one thing. The other one is when you talk about 99-2000, there's actually two technology differences, very different from right now. Number one, of course, all the spend was on fiber, right? Fiber into the ground by the Verizon such dimensions. It's not necessarily true. And Cisco routers and switches that you have to hook up to the stuff. Whatever it was PCs, but yeah. But PCs were fine. Let's put the PCs aside. Everybody talks about the fiber glut, right? It's the dark fiber at that point in time. The fiber company spent only $50 billion in aggregate in five years from 98-0 to the CLEC spent another 50 billion. We went back in with the numbers. So the two flawed bankrupt business models of that cycle, fiber companies and CLEC's spent a total of $100 billion over five years or 20 billion a year. They were a small part of the overall TMT spend back then. Well, most of the profitable companies, I mean. But by the way, the old profitable company, Spanning, I agree with that. But a lot of the spending was coming from the revenues of Ciena and Cisco. Yeah, but a lot of people thought it was always dot coms in the fiber companies and many other people say that. Yeah, that was a small amount of money. But the explosion in the Cisco and Ciena revenue back then, right? JDS Unifease, which I'm sure you remember, we were probably sorting it. Oh, yeah. Which is currently momentum, whatever it is. Over these companies, that's fiber related stuff. That was sailing, something fiber related. Even if it wasn't just pure fiber, it was the switches, the routers, the lights, and so the fiber. But that a lot of companies ultimately realized they didn't need. Yeah, so let's talk about that. The truth is, why did you need it? Number one is when you install fiber into the ground, 70% of the cost was fixed cost of the blue cover workers with the bulldozers. That they have to come, dig a trench, put the fiber, leave. So if you spend 70% on a bulldozer with the blue cover worker, mind as well put as much fibers you can, humanly possibly. Of course you will over build it, out of our bill, for sure. So that's one. Second, they will say technology change around multiplexing. And basically the multiplexing allowed, time division multiplexing allowed to increase the amount of technology change. Technology changed. Exactly. And it's just to say that's not going to change with token usage. Well, we don't know. That may very well change. By the way, it's very possible to change. The reason the token of the user is going up is the scaling laws I was talking about some extent. And these scaling laws could change. Somebody could break them. They're not physical. They're not physics, they're not anti-marics laws, they're empirical laws. They like more slow. More so was a life like 35 years. Scaling laws for the airship in around 12 years. That may change. It comes up with a new AR detector, new model, which is not a large language model, which is not a transformer. Just a new model that somehow gets a lot from nothing in terms of capacity investment. This whole discussion changes. And China hasn't done that. Because some people say China is doing that. People say that very infatically when Deepsea came out in January 2025, and all of these AI companies sold over 30 to 60% over three weeks, because everybody felt that, "Oh my God, this is the multiplexing phenomenon, right?" All of a sudden we broke the scaling laws, we can get a ton of tokens for basically very little cost. That obviously wasn't true. You should be very careful of things China says. Yeah. You should be careful. There are many people on the Silicon Valley that continue parenting, that fall, China, paradigm also. And my friend Jim Grant calls it, "The People's Republic of Meadow." And that's some experience with China. So Deepsea was a net, obviously. Deepsea was not yet. It was just the next step in reducing costs of tokens, combining several different algorithms according to everybody in the world. Maybe it may be something else, though. If that happens, pick some shovels, we have to have a very different discussion. That is the nightmare situation. So if somebody gives me a wake at night about my lungs, it might be a segue to the first slide. I'm not sure how that's a segue, but I want to talk about memory. The history of chip making, memory has been a commodity business. You have everyone's competing with each other, producing as much memory as possible. Prices are going down. Companies are going out of business. Why is it different this time? I should say, as many people know, the three big memory producers, one of which is American two of which are Korean, their stocks have gone up so much. Their actual forward price earnings ratios have gone down because their pricing power expected has gone up so much. But why is this different? Everyone knows that the time to not buy an oil company is when it looks cheap because when the price is at 150, forward price is 6, but that's not the good time to buy it. Why is this different? Well, the most dangerous world this time is different. So I'm not sure this time is different. In the sense that I'm not going to sit down and argue that memory prices will never ever come down. I've lived that for long enough time. I've been on the bike for 26 years or whatever it is. I've seen that movies so many times. What I do believe though is that the amplitude with the peak in terms of need for memory is higher than any time before over the last 25 years. And I think the peak is shallow for a while and for a while that could be like two, three years or whatever it is, four years before there is a rollover in price in memory. The market right now is discounting or believing that rollover with a big sharp price decline in memory prices is like six to nine months out. That is because of the belief this memory stocks are trading at six, seven forward multiples. I mean, not even forward, 20 to 26 multiples. So they're like the cheapest dirt in the world, six to seven multiples. The only time you have a multiple like that is if you believe in an imminent down turn, like six months out of down turn, this is unlikely to happen. Let me explain why that very likely to happen. It is very much the play constraint and it is very, very hard to add capacity very quickly within nearly. This is true in the channel for semiconductors and we can discuss why semiconductors are actually the ones putting the brakes right now, the whole AI boom, which by the way has been way bigger than what it currently is if it wasn't for the brakes from the semiconductors. But the two reasons they're way cannot add too much. Number one, even if you have infinite amount of clean room, clean room is the big facility which is super clean inside so there's no contamination of the wafer's. Even if you had infinite amount of that stuff, you have to have equipment. The equipment makers like ASMR applied materials, whatever it is, they cannot really grow their revenues or their shipments by much more than 30% a year. It is a supply chain complexity that constraints they grow to about 30 to 35% a year. That's kind of a max. So you just cannot add more than 30 to 35% per year bits. Bits is the piece of a piece of cell in a wafer that stores the information. That is the ultimate determinant. You no matter what you want, you just cannot add more than that. Oh, by the way, there's not enough clean space either because the memory makers were going through a downturn where the prices were going down and margins were going down all the way into through 2024 even in the beginning of 2025. were pretty done a week. These people in the memory world, or in the semiconductor world, are dramatically different from the silicon-vari people. These are like 60, 70-year-olds with a lot of experience. They have seen that movie many times before. They don't believe any 30-year-old shows up from the silicon-vari, telling them, "Oh, I need like a hundred times more memory, don't want you to ever make." The cautious. The cautious. Extremely cautious, right? So they never would actually even prepare for this additional clean space that they need it. Except the CEO of Taiwan Semilast night actually pushed back on that very idea. The CEO of Taiwan Semilast night is one of these 70-year-old guys who've seen it all and have seen the cycles. And there is a belief out there those people are keeping the brakes on expansion because they don't want to expand too fast and see the downside of the cycle. He actually said last night, he said, "No, we're gearing up as fast as we can. There's other bottlenecks out there, but we are going to be building shipplants as fast as we can." So he did push back, interestingly, on the belief, "Well, a bunch of old guys in Taiwan and Korea, who aren't going to let this get out of hand." And so pricing will stay. But that's the upper-tier force. Fast as we can. It's true. They're doing the fast as they can. Back to my main argument, the equipment companies cannot grow more than 30% of year. That's as fast as they can. That's a different constraint, but okay. This is the physical constraint. The physical constraints here. This is not like, "Oh, I just want to add, just can. They're physically constrained." By the way, this procedure is expensive and they take five years to build. So that will increase in the cost for everybody else? For sure. Semilast, definitely. Semilast is a very inflationary. The minute more slow slow down, five, six years ago, deflation is same as stop and it became inflationary. It became inflation. It crossed the board for six, seven years. And so you have been looking on the skeptical side to use a chiptankless word at the users of memory, right? Oh, yeah. So memory has gone up in prices. Many people know. Deer-round flush, so Deer-round is the memory where you store your operating systems. Super fast, super expensive. Flashes where you store your pictures and videos, whatever it is, much cheaper. These prices have gone up four to five effects. It was 100% driven by the data centers because, first of all, the models change from pure chat box to reasoning models that require a lot more talk and that need to be stored a lot more of that. Then you had increasing context windows, which is context windows way you actually ask a question or you throw a million-line software call that you want to change or improve. And then at the end of the day, over the last five months, the agents came around and the agent just suck a ton of, they need to store a lot more information than anything else before that. So the storage need of AI during capric damage just exploded over the last 12 months because of these technology changes. It wasn't willing, they're just ordering stuff because they feel like they only needed, they just needed right now. Of course, the memory guys are not prepared. Prices went up for the roof. They have four to five effects as we speak. Go more. They're going more. They're definitely going more. They're going more. They're going like 30% like quality, as we know. The issue now is for PC makers, smartphone makers, consumer electronics makers, all the gadgets that we use, right? If you're like an apple or somebody else, you build a material that you were paying, build material with the cost, that you were paying a part of your cost structure for memory used to be 20% for a PC smartphone about 20%. Now it's like 50%. The only way this memory, this manufacturers can survive by the many of them working for like five, six percent margins, operating margins, the only way is for them to pass the cost increase to the consumer. That is why smartphones are going up in price, not Apple, but everybody else. PC is going up in price. You can actually go and see it in the store at Best Buy right now. They easily have a lot compared to before. So they're passing through that. Consumers, but that's a very elastic market. With consumers, we see a PC being up 50% in price. Well, you know, we wait. We're going away for another 12 months and the whole price comes down. So that pushes the units down. So the units for PC, since smartphones this year right now are probably down mid-teens. Very rare to be seen, by the way. Almost never you see that situation. They just flood. These are like X-Glob flood markets for like decades or over a decade of smartphones. Don't you think it's not fun? So this, I think this shortening opportunity is on a bunch of componentry makers, that actually sell components to the PC makers or the smartphone makers that don't get the price in power. They just take it on the chin on a unit decline. That's what I meant. Okay, that makes sense. Jim, what do you think about memory prices? And I mean, certainly there is a price or maybe there's not of of DRAM and NAND and memory where the supply chain is incredibly incentivized to build production as quickly as possible. I mean, do you do you agree with what Val is saying that they already are moving as fast as possible and they're just physical constraints that cannot be surpassed? Because you know, when lithium cobalt oil, natural gas, anytime the price goes up, all the CEOs and the minoring people say like, I mean, just to build a mine takes seven years, we could never do it. And then a year later, the price is collapsed, you know, because if supply has gone up, come on mine. I know memory's different, but it's want to get your thoughts. I mean, in my 40 years, I don't think I've ever made a single dollar being short to DRAM companies. It's a cyclical business. People weigh overboard on the way, they get way too pessimistic on the way down. You know, it's just the business we've never been able to time correctly, so we've generally not played in it. And generally, I've not played in the peer semiconductor area. I would however point out now that we're getting also in the CPU area, but we're getting some really interesting deviations and valuations on businesses, you know, are going to be around and profitable and growing for the next five to ten years versus companies are now trading these traded two times revenues and now trading at ten times revenues from twelve times revenues. What do you mean Jim? What do you mean? Well, I mean, so you look at some of the CPU companies that have just taken off. It's about like Dell, HP, Intel, Intel, Intel, AMD, AMD. And then you look at the companies, if I want semi-GPUs in Nvidia and others, Broadcom, you're beginning to see, you know, some pretty amazing valuations on companies that are still going to be in pretty competitive market versus companies that are going to be in our bullet. I would go, I would go, yeah, what you're saying is that the Intel has gone up so much and it's in a competitive industry whereas Nvidia is dominant and Nvidia is still cheaper compared to these companies. Much cheaper. Yeah, yeah, much cheaper. Value-grey. Nvidia is definitely much cheaper than Intel. Let's put it in perspective though. Intel hasn't made money in a couple of years. Intel used to be monopoly forever. They lost everything. They lost a lot to AMD, fell behind. You're not looking at them early, but we're looking at them wherever they're doing. Yeah, yeah, understand. You're looking at revenues. So I'm not going to argue with you on Intel, one bet. What they do want to make a point of valuations, right? Because sort of that ties up to this whole thing, stuff has gone up. Something's expensive. Something's not expensive. My point is that this hasn't been, even though a lot of these semi-components have gone up a lot over the last two months. This is not a situation where all the valuations of every single one of them is through the roof, which by the way was the case in 1992, which I do remember. Even a thing like Cisco back then, which I ended up literally 160 times P-multiples. Have you seen Tesla lately? That's between you and I'm on. There are companies trading in 150 times earnings. I'm sure they are, by the way. But not in the SMH. Not in the SMH side. Not in the semi-side. So in the semi-side or even the heart-to-excite in general, you can have probably the most exaggerated valuations right now, among the networking sites, which are like 50, 60 forward multiples, on one end, that's the most extreme versus Tesla, whatever it is. Memory-I-Body, machine 5, 6, whatever it is, on the extreme other end. In videos at like 15 times, on 20, 27 EPS, Broadcom after the decline this morning is at 12 times, 20, 28 EPS. So this is not a space that is like 99 where everything was fraud-fainted, gone nuts in those valuations. What do you make of it? I don't even know why Costco is more expensive than just a Chinese company or why. Or Walmart. I don't know what these things are. The Costco of the semiconductor index, I think, is the equipment manufacturers that supply TSMC and the memory providers. Land Research, Asaml, as you mentioned. And I know you're not in love with that sector, not talking about individual companies. Why do you. It seems like even though those. Do you think those don't merit those high valuations? Because it's very likely that if they're selling to memory companies, memory companies are going to. and need their products very high. And they have the, what's the called, the razor blade model as well. - Yeah, so look, these are very sound companies. They're fantastic business models. They effectively sell them monopolies in the initiatives, some of them are monopolies in the initiatives. The issue is back to what I was talking like five minutes ago, 10 minutes ago that their graph is capital about 30%. And they don't increase prices to increase the graph above 30%. And they already trained it like, I don't know, 35, four multiples, 35 by the way, it's not horrible for a 30% grower. It's just, it's much more expensive than a video, a broadcom or some of the others, so that's helping a high margins. So it's a wonderful relative situation, supposed to, oh my God, this is a bad company. - I see. Well, we're running out of time, Jim, I'll give you the final word. - Well, I think we probably agreed on more than, than we've disagreed. I think that's fair to say. I think again, it's a market in which there's gonna be opportunities of both belong on the short side. And in AI specifically as well. And just, I would tell the attendees today to just be careful that you're not putting magical valuations on mundane businesses. Because one of the things we do know is capital is flowing immensely into this space. And that tends to reduce returns. And it will flow to everybody in this part of the cycle. It will stop flowing to those companies that have the mundane business models going forward as that becomes clear. And I suspect we'll know that within the next 18 to 24 months. - We'll leave it there. Thank you very much. - I hope you enjoyed that as much as I did. Val talked about potential opportunities in the memory and optical, photonic space, whereas he seemed a little bit more skeptical about the semiconductor equipment companies that supply the semiconductor fabs. Interestingly, Jim Chanos is not short at all any of the semiconductor companies. And instead, he's looking at being skeptical about data center players such as Core Weaves, so-called NeoClouds, as well as legacy data centers that may be made obsolete by AI. I wanna thank macro minds again. I will include in the description a link to where you can donate to the macro minds foundation as well as more information about the three nonprofits that it supported this year, NYC First, Opportunity Music Project, and 100 Women in Finance. Over the past year on Monetary Matters, I've shared my view that semiconductor earnings would surge on AI CapEx, and I've been helped enormously by guests such as Satrini and Angus Shillington from Banek, as well as others. I still think that there is value to be had on the long side. I still like broad semiconductor exposure, and though I've had some success in owning call options on Marvell and Terrodine, if you had to ask me the name that I'm most excited about right now, I would say in video. At the same time, I'm attentive to the risks that this is a giant bubble, and that the return on investments for these vast sums will not materialize. I also think that regarding the status quo where semiconductors earn tremendous profits while the model company's report huge losses, while ultimately that status quo is unsustainable, I do think that it continue for a year or perhaps multiple years. That is one thing I have noticed about technological booms is that they frequently last longer than many people think. But if you wanted to know what I think under my head are semis along or a short right here, you have my answer. I think that even if this is a bubble and that the bears are right, being outright short semiconductors right now might not be a risk worth taking. Also, I will share just on the bear's side that Metis AI strategy makes no sense to me whatsoever, and while I'm not short met it currently, definitely consider me a bear on the stock. I'm also aware that this view is slowly becoming consensus so it could be wrong. Speaking of bears, I just interviewed the most outspoken skeptic about AI and the data center cat-back spilled out, Ed Zittron. That interview will go live on Sunday, June 21st, so stay tuned for that. He has data on the operating losses of at least one model company, which in 2025 was absolutely staggering. You're not gonna want to miss out on that. More generally, on monetary matters, Max and I plan on having bulls and bears to talk about AI, not just on the large language model companies, but also the hyperscalers, the NeoClouds, and of course, the semiconductors. I hope that whatever your view is, the viewer, you can find value and information that is accurate. While I have a lower degree of confidence in how long this boom continues, what I have high confidence is that the US economy and in particular, the US stock market is increasingly becoming a concentrated bet on whether AI is going to work. Tremendous will be the rewards if the bet pays off, as will be the losses if it doesn't pay off. Please subscribe to the monetary matters YouTube channel, leave a rating and review for monetary matters on Apple podcasts and Spotify, check out Max's podcast, other people's money, and also don't forget to check out monitoring the situation, a live stream that happens every day where Max and I host from 4 p.m. to 5 p.m. Eastern with tremendous guests. Until next time.