Dan Niles, founder of Niles Investment Management, expressed his concerns about the financial viability of hyperscaler companies that are heavily investing in AI infrastructure. He noted that the significant capital expenditures may not yield the expected returns, leading him to trim his exposure to these companies.
On a recent CNBC appearance, he highlighted that while chip stocks have benefited from AI spending, he is also reducing his holdings in this sector after substantial gains, citing Micron Technology's impressive 300% increase this year as an example.
The market is currently experiencing a divergence, with the Magnificent Seven companies facing pressure, particularly Alphabet, which saw a decline of over 6%, while semiconductor stocks like Micron rose by 4%. Niles pointed out that companies may shift towards cheaper AI models due to rising costs, which could further impact the revenue outlook for hyperscalers.
He anticipates a potential slowdown in growth, particularly as companies reassess their AI spending strategies