- Dan Niles discussed Cisco’s (CSCO) potential in the AI revolution, comparing it to the internet boom, and sees growth due to strategic acquisitions and data management focus, with a promising valuation at 17 times PE.
- On inflation, Niles increased his estimate of the Federal Reserve maintaining or raising rates to a two-thirds probability, citing consistent increases in various inflation metrics post-June 2023.
- He reflected on past Fed responses to inflation, warning that if current trends continue, the Fed might need to act decisively, affecting market reactions similar to those observed in 2021 and 2022.
Dan Niles, founder of Niles Investment Management, recently appeared on CNBC’s ‘Closing Bell Overtime’ to discuss the current market environment, particularly focusing on inflation’s impact and the trajectory of tech stocks. As the Nasdaq (COMP) fluctuated amid inflation concerns, with significant rebounds led by companies like Intel (INTC), Tesla (TSLA), and Apple (AAPL), Niles provided insights into specific company performances and broader market trends.
Initially, the conversation pivoted to Cisco (CSCO), a company Niles has been watching closely this year due to its involvement in the AI revolution. He likened the current AI boom to the internet bubble of the early 2000s, questioning how investors should interpret Cisco’s potential in this new tech wave. Niles explained that while Cisco was central to the internet’s expansion, its stock did not meet expectations back then. However, he sees a different trajectory now, focusing on Cisco’s strategic acquisitions and their role in data management and movement, which he believes positions the company well for growth. He argues that at a price-to-earnings ratio of 17, compared to the S&P’s (SPX) 26, Cisco could see its valuation align more closely with market multiples if it continues to prove its strategic direction.
Broadening the discussion to market-wide inflation effects, Niles analyzed the recent CPI print, noting its implications for Federal Reserve policy. He initially estimated a 50% chance of the Fed either maintaining or increasing rates at the start of the year, but now adjusts this to a two-thirds probability after observing consistent upward trends in various inflation metrics. Niles reflected on past Fed reactions to inflation, particularly in 2021 when the Fed’s initial dismissal of inflation as transitory led to later aggressive rate hikes. He expressed concern that if inflation continues its recent upward trend, the Fed might need to act more decisively, potentially leading to market adjustments similar to those seen in 2022 when the S&P fell despite high inflation rates.
Niles concluded by emphasizing the importance of anticipating how the Fed, under Jerome Powell, might respond to these inflationary pressures. He cautioned that the Fed’s acknowledgment of persistent inflation could significantly influence market directions, suggesting investors should prepare for potential rate hikes or at least a sustained period of no cuts, impacting both market sentiment and stock valuations, especially in tech sectors poised for a rebound.
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