Is AI Repeating the Internet’s 1998 Drawdown? Dan Niles Thinks So
Dan Niles doesn’t assume the synthetic intelligence (AI) market has peaked, crediting agentic AI for that view. Still, he has spent weeks advising buyers to carry more money and keep cautious.
His warning lands days earlier than Microsoft, Alphabet, and Amazon report earnings. Chip shares have already fallen quicker than the market. The PHLX Semiconductor Index (SOX) misplaced 3.2% final week, whereas the S&P 500 fell 0.5%.
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Why Dan Niles Favors Cash and Caution however Won’t Call the Top
Agentic AI, Niles says, makes use of 10 to 100 occasions extra tokens than inference. He compares the present repricing to the 1997 and 1998 web drawdowns, which preceded a rally.
“In abstract, due to the introduction of Agentic, I don’t consider that is THE TOP,” he said.
Still, Niles sees the market repricing 2 issues. Funding is getting dearer in both debt and equity markets, and progress at AI-native corporations is slowing.
CoreWeave is his debt-market instance. The firm bought $1.25 billion of unsecured 2032 notes in June with a 9.625% coupon. Those notes have yielded round 15% this month, and CoreWeave stock had fallen 36% since the begin of October as of final week.
CoreWeave rents computing energy to Microsoft and Meta, so its funding pressure sits inside Big Tech’s AI provide chain.
On progress, Niles says Anthropic’s quarterly income progress slowed from 145% in Q2 to 45% in Q3.
Data Center Pushback Hangs Over Big Tech’s Earnings Week
Beyond funding and progress, Niles flags a political danger. Both US parties seem to agree on knowledge middle moratoriums, he says, which may worsen after the midterms. He worries they might harm cloud progress steerage for the December quarter.
Australia’s NextDC reveals how briskly that danger can attain a share value. Its inventory fell 39.5% on October 21 after energy delays tied to neighborhood opposition compelled a steerage minimize.
In the US, Amazon dropped plans for 4 knowledge middle buildings on a $427 million campus in Loudoun County, Virginia. Opposition blocked or delayed US tasks worth $68 billion between April and June, in accordance with Data Center Watch.
Microsoft and Alphabet report after the close on October 28, hours after the Federal Reserve’s fee determination. Amazon follows on October 29. Niles expects their inventory strikes to hinge on feedback about capex, bills, money move, and financing wants.
“I fear whether or not a datacenter moratorium causes a difficulty with cloud progress steerage for the December quarter regardless of very sturdy progress in the September quarter,” he added.
Others learn the cycle otherwise. Former BitMEX CEO Arthur Hayes expects the AI buildout to end in a crash, whereas Fundstrat’s Tom Lee says the AI selloff is nearly over. This week’s financing commentary could present whose learn holds up.
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