Hedge fund manager Dan Niles sees this week’s tech sell-off as confirmation the trade is in significant trouble. Niles sees the market’s response to Google parent Alphabet ‘s quarterly results as evidence investors are getting impatient. Shares tumbled 5% on Wednesday. “The way the market reacted to Google tells me that people are finally starting to wake up to the reality of ‘yeah, at some point we’d like to see revenues for all this [artificial intelligence] spend,'” the Niles Investment Management founder and portfolio manager told CNBC’s ” Fast Money ” on Wednesday. On July 11, Niles warned on X that earnings season could expose big risks in the megacap tech trade. He was particularly worried about the Magnificent Seven stocks, which include Tesla , Nvidia , Alphabet , Meta Platforms , Microsoft , Apple and Amazon . The index tumbled almost 6% on Wednesday. Among its biggest losers: Nvidia. The megacap semiconductor stock dropped almost 7% on Wednesday. It is slated to report quarterly results on Aug. 28. ‘Probably overbuilding right now’ “My assumption before [Tuesday] had been we’re going to see a slowdown in spending on AI, but Nvidia won’t see a down sequential quarter for many years much like Cisco didn’t see one for many years during the tech buildup,” said Niles. “Now, I’m actually wondering if we do get a down sequential quarter at some point next year because these big, massive tech companies are admitting they’re probably overbuilding right now.” Niles, a former Wall Street semiconductor and computer hardware analyst, also see risks stemming from frothiness in China. “If you’re saying, is there a bubble because China is overordering everything under the planet before potentially we have a change in administration absolutely 100%. That’s the rational thing for China to do,” added Niles. “And, if you look at some of the [capital] equipment companies that are reporting, China’s close to 50% of revenues. So, you’re going to have a fall off some time next year in cap equipment that’s going to be horrific because of that.” According to Niles, there’s not enough downside in the space yet to add exposure. “On the short side, we covered one of our Mag Seven shorts today, which got crushed,” he said. “But in general, we’re still looking more on the short side.” Longer term, Niles thinks the bull case for megacap tech stocks is intact. “I think we’ve got multiple more years before this hits a sustained peak or whatever you want to call it,” Niles said. “So, you just have to live through this period of time much like you had to live through three horrific drawdowns in Cisco on the way to the stock being up 4,000%.” Disclosure: Owns Apple, Nvidia, Amazon. Disclaimer
https://www.cnbc.com/2024/07/24/more-pain-ahead-for-megacap-ai-stocks-hedge-fund-manager-dan-niles.html
