The analogy I would tell people is this is like Apple to me. If you would come into 2011 bullish on Apple, right? What happened? Well, Steve Jobs in January took medical leave. He passed away in October of 2011. The S&P in 2011 was flat. NASDAQ was down, I think, 3%. Apple finished the year up 26. And it's the same thing with Nvidia. There's like 40,000 employees at Nvidia. Is it Jensen ridiculously important? Is he a generational CEO like Steve Jobs? Absolutely. But with the stock trading at 11 times, 12 times earnings, what if earnings are fine?
Yeah, I hear what you're saying around relative value. I guess it was Dan Ives, I think, that was talking about there could be another 20% move to the downside if Jensen is removed.
I think that's completely wrong.
You think that's wrong? Why?
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All right. All right. Well, Nvidia has officially erased gains on the year, but our guest today is saying that now could be the time to potentially take a closer look, and also wants to weigh in on what we are seeing and what it means for the broader AI complex as we await the giant Anthropic IPO. Excited to have on Coinage with us, Dan Niles, Niles Investment Management founder. Dan, it's good to see you again, man. Thanks for hopping on.
Oh, my pleasure, Zach. I mean, obviously, this is the hottest story not just in AI and not just in kind of the wider world of compute right now, but all eyes are on Nvidia, all eyes are on Jensen Huang. Just kind of want to start with what you make of kind of where we are right now with this story and what it means for the broader AI cycle.
So let me just start with the bigger picture. I think the bigger question right now is, have we seen the top? Was June 22nd, when the semi-index peaked, was that the top of this AI cycle? And are we now headed to the other side? Because the way I think about things big picture is, in every great industrial revolution, whether it's canals, railroads, you know, fracking, highways, internet, you always have overinvestment because people know if you're the last company standing, you're going to make a lot of money on the other side of it, right? Obviously, AI actually dwarfs the three big investment cycles we had over the last hundred years of electrification, highways, and of course the internet. You add those three investment things together, it still doesn't equal the three and a half percent of GDP that AI is.
So right now, what have you had happen? Well, the midterms, I started to worry about those back in October because when Texas started to say, 'Hey, we're putting a kibosh on permits for, you know, environment, for the environment, we're putting a kibosh on new connections to the electrical grid,' I'm like, okay, we've got a problem. So we started to worry about this back in early October, and things obviously started to implode, and then it really crescendoed off the midterms. The good news is because of that, positioning has been completely reset. Funds have been forced into selling. Obviously, people remember Situational Awareness in July, but there was even more carnage this last week as you got people getting wiped out in their AI-related positions. So then the Nvidia stuff happens, and it's just like icing on the cake. But the interesting part is the semi-index has actually been rallying while this has been going on with Nvidia, right? If you look at it now, so why is that?
Well, even if June 22nd was the top and we're sitting where we were back in March of 2000 when the internet bubble broke, there were seven rallies in the NASDAQ that averaged 25% each on the way to losing 78% of your money over two and a half years. So the way I deal with investing is, I have a view of where I think we are, but I don't really care in terms of managing money short term because if I think we're at a bottom because of positioning and I think we're setting up for a 25% rally, I want to catch part of that.
And I think going into CoreWeave, where CoreWeave was also at the epicenter of these problems with, you know, 15% cost for their debt in terms of the interest on that debt, right, because the bonds had sold off, they came out last night and said, 'Hey, by the way, we only have to spend five billion next year or raise five billion next year,' and the stock then started to take off. And what's even more interesting to me is Anthropic supposedly on their IPO roadshow saying, 'Hey, we're going to probably end up canceling our SpaceX contract by the middle of next year.' And SpaceX actually went down and then it actually was up, and you know, it's near unchanged. And so what this tells me is I think positioning has gotten so negative that the market itself can probably rally through year end.
Nvidia is kind of another example of that where, you know, the stock is actually up today despite all of this stuff going on. And the analogy I would tell people is this is like Apple to me, right? Steve Jobs, if you would come into 2011 bullish on Apple, right, what happened? Well, Steve Jobs in January took medical leave of absence, he passed away in October of 2011, the S&P in 2011 was flat, NASDAQ was down, I think, 3%, Apple finished the year up 26. The next year, Apple was up more than the markets again. Why? Because they have so much product in the pipeline that it didn't really matter. And it's the same thing with Nvidia. There's like 40,000 employees at Nvidia. Is it Jensen ridiculously important? Is he a generational CEO like Steve Jobs? Absolutely. But with the stock trading at 11 times, 12 times earnings, what happens if, I mean, Microsoft and all the other companies, Amazon, Google, they're not changing orders from Nvidia because of this? What if earnings are fine?
Yeah. Well, I think that's the interesting thing, too, because you've got a lot of people right now. I was just looking back. I think the last time we had you on was back in May, and you pointed out, I mean, we basically round-tripped on the SOX all the way back to essentially flat since the last time we had you on. And I think back then you were saying, look, there's more room to run. You saw that, you were correct in the run-up, and then basically, as you said, since Situational Awareness, the AI index has kind of been, the AI complex has been a little bit shaky. And now certainly as everyone's looking at Nvidia, I hear what you're saying around relative value. I guess it was Dan Ives, I think, that was talking about there could be another 20% move to the downside if Jensen is removed.
I think that's completely wrong.
You think that's wrong? Why?
Yeah, because again, what did I just say on Apple? Should you have been bullish that Steve Jobs left in January? Should you have been bullish he passed away in October? What, the stock?
That's my point with Nvidia. Like, to me, the fact that a lot of people who've been bullish through this whole thing and are now getting bearish is the best thing I've heard because that really tells me that positioning has been cleaned up.
And again, back to my point, we got negative back in June. I put out a piece on June 20th saying, 'Hey, I'm worried about an AI speed bump.' SOX actually peaked on June 22nd. Then Situational Awareness happened on July 29th. We actually put out a note saying, 'Hey, we're hearing, you know, big companies taken out, we think there's a short-term rally.' SOX went up over 25% until it got to early October when, you know, the Texas governor at the time was doing a lot of this stuff. And I'm like, this is like the only thing the Democrats and the Republicans agree on, putting a pause on data centers. They don't agree on anything. I'm like, how is this not a bad thing? And so we got negative again. By the way, the SOX got below the lows of Situational Awareness, right?
Yeah. I guess on that front, how do you see it? What is the catalyst then to kind of start to turn things again? Like, what is that trigger that you see?
Let's go up on bad news. That's what happens again. NASDAQ goes down 78% over two and a half years. NASDAQ has seven separate rallies of 25%. Why? Because when stocks stop going down on bad news, you always have these people who think, 'Oh my god, the stock market sees ahead, it's a discounting mechanism, it's not the bottom, you know, it's not the top, etc.,' and they run up. But the good news is, what do you have happen every three months? Companies report earnings.
Yeah. I think there's also, I mean, I guess when it comes to the AI piece of this, too, and I guess maybe what some viewers might be saying is that Jensen, unlike maybe Steve Jobs in terms of him being kind of a foundational, generational CEO to use your phrase, Jensen's also been tying all of these AI companies together when it comes to presenting a united front to Wall Street in terms of how the AI, I don't know, we can call it a bubble, we've used that term before when we had you on last time, will continue to grow because of the way that financing plays into the cost of compute and the data centers, as you say, will continue to kind of turn this wheel. It's almost as if Jensen is a large enough character to where it's even bigger than just Nvidia.
I mean, yes, he's very important to AI, but if that's the case, why is the semi-index up percent today and Nvidia a ton? Like, the more news that comes out, unfortunately, I think he's probably going to end up having to leave or get demoted at the company, right? This does not look good as more facts kind of come out. I hope he gets to leave the company. I try to separate out, I don't try to make moral judgments, right? My goal is, what do I think will happen with the stock?
And so to your point, yeah, is he doing a lot of financing? Yes. But what about Microsoft? What about Amazon? What about Google? You look at the Anthropic IPO, all of those companies are investing in Anthropic. What about Broadcom? Like, there's a broad list. Jensen is a generational CEO. I don't want to say that he isn't. I've known him for 30-plus years at this point, and so he's incredibly important. But is he going to change how much Zach Guzman goes on and uses agentic AI, or Dan Niles, or the 8 billion people on this planet? No. And that ultimately is what we have to focus on, is where are we in the agentic AI adoption cycle.
So this whole thing with Jensen, don't get me wrong, he's very important just like Steve Jobs was, but the world is bigger than one man. There's 40,000 people at Nvidia, just like there were a lot of people at Apple when Steve Jobs passed away. Somebody else will step up. There's enough products in the pipeline at Nvidia because of Jensen to sustain that company for at least two years. I'm not spending a lot of time worrying about that because there's 5,000 other stocks in the stock market, right? And so I'm trying to figure out bigger picture. Is this March of 2000 or is this like 1997 or 98?
Semi-index went down 40% in '97, you know, peaked to drop in '98. Same thing because you had the Asian currency crisis, then you had the Russian bond default in 1998. Semi-index still finished the year up 10%, 33%, and then ripped higher in 1999. I think it's that, but it could be March of 2000 because the other side of that is, well, demand's still so good. Why did SoftBank cancel, take a $3.7 billion write-down on a bunch of generators from GE Vernova? Why is Anthropic on their roadshow saying, 'Yeah, we think we'll be able to cancel that SpaceX deal for compute by the middle of next year'?
Well, I definitely want to get into Anthropic because I think, as you said, that is kind of one of the pieces here that definitely will be a goalpost for, I think, the entire industry to watch. But just to kind of double down on where you differ from some of the other analysts out there like a Dan Ives, it's interesting because it's almost as if all of these markets are trying to discount and figure out what the odds of Jensen leaving are. That's kind of where these differences are. I was looking at Polymarket before. There's like a 17% chance that he's removed or steps down by the end of the year. I don't know if you would say that sounds right to you or if that sounds off, or maybe it doesn't even matter, like you said.
Yeah. Like, the difference between me and a lot of people is I don't think I'm some genius that can see 10 years ahead, because if you go back to the technology industry, 95% of the time the leaders aren't the ones that emerge, right? Like, think about Nokia. They had 40% global market share in smartphones. They don't make phones anymore, right? Remember BlackBerry? Remember Motorola StarTAC, my first phone? What about in the internet? Where's AOL today? Where's Yahoo? Where's Netscape? Ask Jeeves. You know, so for me, I go, these things when they turn, they can turn fast. They can turn viciously.
I treat every top that I think is coming as this could be the top. And even if it isn't, the drawdowns can be absolutely vicious. So to try to tell people, 'Oh, don't worry about it, it'll be fine,' it's amusing to me because now you have some of those same people saying, 'Well, you know, there could be a ton more downside.' Well, you just had investors suffer through, like, I think end of last week, over half the stocks in the semi-index were down over 50% from their peaks.
I would argue that's bad. And now you're concerned.
Should have been concerned was back in early October.
Yeah. And you, as you said, you definitely were waving that flag to let people know that, hey, look,
But here's the thing, right? I didn't think that was the top. I still don't think that's the top. June, actually, is when I started waving that flag back on June 20th because I said I thought there was an AI speed bump. Why? Because companies were trying to control their AI spend.
Right. So my thing is I treat every fundamental top as this could be it. Because if it is it, the drawdown's not going to be 40% like we've seen or we saw in '97 or '98. It's going to be 83% like what we saw from March of 2000 to October of 2002.
I think you have to be humble enough to go, I don't know how this is going to turn out. I could be off on my timing. Like, when I downgraded everything I covered at Lehman Brothers in 2000, there was no way on this planet I was thinking NASDAQ would be down 78% peak to trough, semis would be down 83%, and the S&P would be down 49. It just evolved into that.
Yeah. Yeah, I mean, obviously, again, I think maybe over the last couple weeks or so we've seen when kind of moves can start to build on other moves. But I guess the one thing everyone's looking forward to is going to be this Anthropic IPO. I don't know if that's signaling anything to you in terms of how it's been received or valuation you might expect.
