Dan Niles does not think the artificial intelligence (AI) market has peaked, crediting agentic AI for that view. Still, he has spent weeks advising investors to hold more cash and stay cautious.
His caution lands days before Microsoft, Alphabet, and Amazon report earnings. Chip stocks have already fallen faster than the market. The PHLX Semiconductor Index (SOX) lost 3.2% last week, while the S&P 500 fell 0.5%.
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Why Dan Niles Favors Cash and Caution but Wont Call the Top
Agentic AI, Niles says, uses 10 to 100 times more tokens than inference. He compares the current repricing to the 1997 and 1998 internet drawdowns, which preceded a rally.
“In summary, because of the advent of Agentic, I do not believe this is THE TOP,” he said.
Still, Niles sees the market repricing 2 things. Funding is getting more expensive in both debt and equity markets, and growth at AI-native firms is slowing.
CoreWeave is his debt-market example. The company sold $1.25 billion of unsecured 2032 notes in June with a 9.625% coupon. Those notes have yielded around 15% this month, and CoreWeave stock had fallen 36% since the start of October as of last week.
CoreWeave rents computing power to Microsoft and Meta, so its funding strain sits inside Big Techs AI supply chain.
On growth, Niles says Anthropics quarterly revenue growth slowed from 145% in Q2 to 45% in Q3.
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Data Center Pushback Hangs Over Big Techs Earnings Week
Beyond funding and growth, Niles flags a political risk. Both US parties seem to agree on data center moratoriums, he says, which could worsen after the midterms. He worries they could hurt cloud growth guidance for the December quarter.
Australias NextDC shows how fast that risk can reach a share price. Its stock fell 39.5% on October 21 after power delays tied to community opposition forced a guidance cut.
In the US, Amazon dropped plans for 4 data center buildings on a $427 million campus in Loudoun County, Virginia. Opposition blocked or delayed US projects worth $68 billion between April and June, according to Data Center Watch.
Microsoft and Alphabet report after the close on October 28, hours after the Federal Reserves rate decision. Amazon follows on October 29. Niles expects their stock moves to hinge on comments about capex, expenses, cash flow, and financing needs.
“I worry whether a datacenter moratorium causes an issue with cloud growth guidance for the December quarter despite very strong growth in the September quarter,” he added.
Others read the cycle differently. Former BitMEX CEO Arthur Hayes expects the AI buildout to end in a crash, while Fundstrat‘s Tom Lee says the AI selloff is nearly over. This week’s financing commentary may show whose read holds up.