Dan Niles on the biggest issue with Apple
Speakers
Dan Niles
— Founder & Portfolio Manager, Niles Investment Management
Summary
Dan Niles of Niles Investment Management appeared on Squawk on the Street to share his cautious outlook on mega-cap tech earnings. He specifically flagged Apple as a near-term avoid due to high valuation and potential margin pressure from rising semiconductor costs, despite its limited AI capex. He also expressed concerns on Meta and Amazon heading into their reports, planning to sit on his hands for most of the group.
- Apple is trading at a high 30s PE versus the S&P at 22x, making it vulnerable going into earnings.
- Rising semiconductor prices could compress Apple's margins and challenge its earnings estimates.
- Apple benefits from not spending billions on AI capex, but that free ride does not justify the current valuation.
- Meta may face increased capex as it talks about launching a public cloud and an LLM API.
- Amazon Web Services has a high bar into earnings, with capex spending fears mirrored by Google's recent decline.
- Niles plans to remain on the sidelines for most mega-cap tech names given the varying, but significant, risks.
Ideas
High valuation, margin risk near earnings
Apple is unattractive into earnings due to its high 30s PE versus the S&P at 22x, risk of margin pressure from skyrocketing semiconductor prices, and the fact that it is not spending meaningfully on AI capital expenditure to drive renewed growth, making the valuation hard to justify.
Capex risk from cloud/LLM plan
Meta is a concern into earnings because the company is talking about launching a public cloud and an LLM API, which could embolden management to raise capital expenditure further, creating risk to profits.
High bar for AWS, capex worries
Amazon is unattractive into earnings because AWS faces a very high bar, and the recent Google example shows that even strong cloud growth can be overshadowed by capex concerns and flat EPS, signalling a similar risk for Amazon.
