Famous Short-Seller Jim Chanos Just Laid Out His Bearish Take On CoreWeave: Should Shareholders Worry?

Core Viewpoint - The article discusses the bearish perspective of short-seller Jim Chanos on CoreWeave, a prominent player in the AI "neocloud" sector, questioning its accounting practices regarding GPU depreciation and the sustainability of its growth [1][2]. Financial Analysis - Chanos highlighted that CoreWeave's capital employed averaged $19.2 billion in Q2, with depreciation and amortization (D&A) plus lease amortization amounting to $637 million, suggesting a 7.5-year useful life for its GPUs [3]. - If the useful life of GPUs were only 3.75 years, the depreciation expense would double, leading to a potential operating loss of $400 million instead of a reported adjusted operating income of $200 million [4]. - The implication is that overestimating GPU useful lives could result in significant financial losses, similar to a bank experiencing defaults on a rapidly expanded loan book [5]. Business Model Risks - CoreWeave's business model is at risk if it overestimates the useful lives of its GPUs, as indicated in its SEC filings, which acknowledge the challenge of accurately estimating component lifespans [7][8]. - Prior to its IPO, CoreWeave claimed that the useful life of its infrastructure exceeded its typical contract duration of 2 to 5 years, with a payback period of 2.5 years for investments [9][10]. Management's Defense - CoreWeave management asserts that it has successfully rerented older Nvidia A100 GPUs after their initial contracts, indicating a strategy to maintain revenue from older technology [12]. - During a recent conference call, management reiterated that older chips are still being recontracted for inference and lower-intensity jobs, suggesting resilience in their business model [13]. Market Dynamics - The rapid introduction of new Nvidia chip architectures could lead to older models becoming obsolete more quickly, posing a potential risk to CoreWeave's operations [6][14]. - While the current outlook for CoreWeave appears positive amid AI growth, the company must continuously find new use cases for older chips to sustain its business model [15].