The market is perched on the edge of a potential 10% correction, and the big tech buying bonanza is on its last legs. So says renowned hedge fund manager Dan Niles, who unpacked his perspective during a CNBC interview on Friday.
Imminent Correction? No stranger to calling market turns, Niles, founder of Satori Fund, warned of a 10% market drawdown by year-end.
He singled out the inflationary impact of rising oil prices, tricky inflation comparisons from last year, along with looming pressures on yields triggered by Japan's yield curve control and the U.S. Treasury's imminent issuance of a trillion-dollar tranche.
Shorts And Longs: While the potential market correction looms, Niles is betting big on Amazon.com, Inc (NASDAQ: AMZN) despite his market apprehensions, while simultaneously shorting Apple Inc (NASDAQ: AAPL).
Niles criticized Apple for its three quarters of year-on-year declines, expecting the downtrend to extend to a fourth quarter. Add to that Apple's lofty 30 P/E ratio, and Niles deems the stock unattractive.
Conversely, Amazon's strong revenue growth against a lower multiple secures its place as the top pick in his portfolio.
The Big Tech Strategy: A shift may be underway in the tech landscape, with the era of one-size-fits-all big tech investing drawing to a close. Niles highlighted the divergence in the post-earnings trajectory of the big tech cohort: Microsoft Corporation (NASDAQ: MSFT), Tesla Inc (NASDAQ: TSLA), Netflix Inc
(NASDAQ: NFLX), and Apple shares dipped, whereas Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms Inc (NASDAQ: META), and Amazon posted gains.
The message is clear - investors may need to ditch the "buy the dip on everything" strategy and start cherry-picking in the big tech space.
AI, The Hidden Budget Disruptor: Towards the tail end of the discussion on CNBC, Niles reflected on the knock-on effect of the rise in AI on corporate budget allocations. As AI-driven security threats mount, companies are being compelled to beef up their security spending, often at the expense of other areas of their budgets, he noted.
Niles punctured some of the AI hype, noting that mere mentions of AI in earnings reports do not guarantee success, an observation underscored by IBM's (NYSE: IBM) performance.