Hedge fund manager Dan Niles sees this week’s tech selloff as evidence that the trade is in deep trouble. Niles sees the market’s response to Alphabet Inc.’s quarterly results as evidence that investors are running out of patience. Shares fell 5% on Wednesday. “The way the market has reacted to Google tells me that people are finally starting to wake up to the fact that ‘Yes, at some point we would like to see revenue for all this spending (on AI),’” Niles, the founder and portfolio manager of investment firm Niles Investment Management, told CNBC’s “Fast Money” on Wednesday. On July 11, Niles warned on X that earnings season could expose significant risks in the mega-cap tech business. He was particularly concerned about the Magnificent Seven stocks, which include Tesla, Nvidia, Alphabet, Meta Platforms, Microsoft, Apple and Amazon. The index fell about 6% on Wednesday. Among the biggest losers: Nvidia. The semiconductor mega-stock fell about 7% on Wednesday. It is scheduled to report quarterly results on Aug. 28. “There may be a build-up now,” Niles said. “My assumption before (Tuesday) was that we would see a slowdown in AI spending, but Nvidia won’t have a consecutive quarter of declines for many years just as Cisco hasn’t had one for many years.”“While the technology is building up,” he said, “I’m actually wondering if we’re going to have a quarter of consecutive declines sometime next year because these big, big tech companies are admitting that they’re probably overbuilding now.” Niles, a former Wall Street semiconductor and computer analyst, also sees risks from the froth in China. “If you’re saying, is there a bubble because China is demanding too much of everything under the planet before we have a potential 100% change in management. That’s the rational thing for China to do,” Niles said. “And if you look at some of the (capital) equipment companies that are reporting, China is close to 50% of revenue. So you’re going to see a decline sometime next year in capital equipment, which is going to be terrible because of that.” According to Niles, there isn’t enough downside in the space yet to add exposure. “On the short side, we covered one of our short positions in Mag Seven today, which got crushed,” he said. “But overall, we’re still looking at the short side.” Longer term, Niles believes the bull case for mega-cap tech stocks is intact. “I think we have several more years before this hits a sustainable peak or whatever you want to call it,” Niles said. “So you just have to live through that period of time just like you had to live through three horrific Cisco declines on the way to a 4,000% stock rally.” Disclaimer: Owns Apple, Nvidia, Amazon. Disclaimer
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Hedge Fund Manager Dan Niles
