Nvidia’s stock (NVDA) took a 14% tumble in the week ending September 6th, reflecting broader anxieties about the tech sector. Dan Niles, portfolio manager and founder of Niles Investment Management, shared his insights on the future of AI and the technology landscape.
Niles highlighted a key concern for investors: companies are pouring money into AI, but revenue forecasts are declining. This is evident in the recent earnings reports from tech giants like Alphabet (GOOG, GOOGL), Microsoft (MSFT), and Amazon (AMZN), all of whom have increased their AI infrastructure spending.
“At some point, you’re spending a lot of money, and you’ll want to see a return,” Niles noted during a CNBC interview.
He drew a parallel with the post-COVID boom and subsequent slowdown, where Nvidia’s revenue growth soared to 80% year-over-year, only to drop to -20% as demand softened. This led to a 66% decline in Nvidia’s stock price as the market adjusted.
While AI spending is outpacing the growth seen during the internet infrastructure build-out, as evidenced by Nvidia’s fivefold revenue increase since the launch of ChatGPT, the slowdown at large internet companies spending on infrastructure is leading to lower forward estimates.
Despite these challenges, Niles remains optimistic about Nvidia’s long-term potential. “I firmly believe in the next several years that Nvidia’s revenues will be able to double from current levels and the stock will be able to double as well.”
Looking beyond the tech sector, Niles believes consumer staples, utilities, and telecom services could flourish as the Federal Reserve begins to lower interest rates. He pointed to the recent decline in the S&P 500 and the “Magnificent Seven” tech stocks, suggesting a shift in market sentiment.
Niles anticipates a decline in interest rates, with the only uncertainty being the number of cuts before the end of the year. He expects additional cuts in the coming year. He also expressed confidence that a recession is unlikely, citing the current job market with more open positions than job seekers.
“In a services-led economy, it’s hard to see how you end up with a recession in that environment.”
