The 2023 market rally has been fueled by big tech companies, many with exposure to artificial intelligence. However, investor and short-seller Jim Chanos has warned of a different bubble brewing: "insane valuations" in some industrial stocks.

What Happened: On Wednesday, Chanos highlighted concerns about high valuations in low-growth industrial companies.

"While people focus on AI, the Mag 7, etc., I think they might be missing the absolute insane valuations that many no or low-growth industrials are now sporting," he said.

He pointed to Eaton Corporation Plc (NYSE:ETN) trading at nearly 30 times its last twelve-month EBITDA and six times its revenue, despite minimal revenue growth over the past decade.

General Electric Co. (NYSE:GE) was another example. Chanos noted its stock price at nearly 40 times estimated earnings per share in its aerospace business, despite only a 5% annual growth rate in that sector since 1999.

Best Industrials Stocks Right Now

Why This Matters: Industrials are traditionally not known for high growth. However, with the Federal Reserve potentially cutting rates soon, investors might favor them over growth stocks.

While rate cuts and resilient economic growth could soften any potential downside for industrial stocks, Chanos' warning highlights the risk of overheated valuations.

Supporting Evidence: The Dow Jones Industrial Average, a benchmark for blue-chip stocks, is nearing its all-time high, reflecting investor optimism about continued economic strength.

The Industrial Select Sector SPDR Fund (NYSE:XLI) traded up 0.13% at $126.10 in premarket trading on Thursday, according to Benzinga Pro data. The exchange-traded fund has added about 11% year-to-date, in line with the S&P 500's 10% gain.

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