Dan Niles, founder of Niles Investment Management, continues to maintain positions in Alphabet, Meta Platforms, and Nvidia despite growing caution on technology stocks. In a recent interview with CNBC, Niles revealed he's growing more cautious on tech stocks as bond yields climb, citing a growing disconnect between the bond and stock markets. The investment manager noted that "at a certain point either the bond market's wrong or the stock market is wrong," adding that he doesn't hold a broad bullish stance on technology stocks. Instead, Niles is being selective and holding more cash while looking for companies where growth and valuation can justify the risk. "Cash is one of my favorite positions right now because of bond yields spiking," he stated, emphasizing the importance of selectivity in the current market environment.
Nvidia remains one of Niles's favored technology names, with the investment manager calling it "the tip of the spear for the AI trade and for the market in general." Niles highlighted Nvidia's valuation at 16x multiple on 70% revenue growth for calendar 27, describing it as "a market multiple" for terrific growth prospects. The chipmaker is positioned to gain additional share among hyperscale customers as power availability becomes a more important constraint on data-center expansion. As Niles explained, "If we've got all these data center moratoria and pushback on power, we have the best token per watt out there." NVDA stock gained around 1% in midday trade on Monday, marking its fourth consecutive session in the green, though retail sentiment on Stocktwits shifted to 'bearish' from 'neutral' territory.
Alphabet reported Google Cloud revenue growth of 82% to $24.8 billion in the second quarter, as reported by Alphabet. This represents what Niles calls the fastest acceleration among Google, Microsoft, and Amazon in cloud computing services. The company's cloud backlog reached $514 billion in June, indicating strong customer commitment for future AI-related services. Meanwhile, Google Search and other revenue rose 17% to $63.3 billion in the same quarter, demonstrating resilience despite AI disruption concerns.
Meta launched Muse, an AI agent that browses the web and completes tasks for users, on September 8. According to Niles Investment Management, the Muse app now ranks above ChatGPT on the App Store, highlighting its user adoption and market positioning. This development supports Niles's thesis that Meta, unlike Google, Microsoft, and Amazon, does not currently rent out AI computing power through public clouds, creating potential for a cloud monetization strategy.
Nvidia set a record high on October 2, demonstrating investor appetite for AI chip investments. However, as reported by Niles Investment Management, the challenge lies in determining who will earn returns on the substantial AI spending behind these chip purchases. JPMorgan's Meta price target rose to $920 from $820 last month, reflecting improved market sentiment toward the platform's AI initiatives. Despite the positive developments, Niles acknowledges concerns about Google's lack of a competing agent while OpenAI has launched its Dots agent, and emphasizes the importance of monitoring search performance data.
