Investor Dan Niles breaks down why 2026 could be messy for investors and shares exactly which stocks he’s betting on.
00:00 – Introduction
00:25 – Navigating Risk & Opportunity
02:12 – Market: Fragile or Resilient?
04:37 – AI Trade: Who Will Win?
06:45 – Apple: A Top Pick for 2026
08:05 – Cisco & AI Infrastructure
10:04 – Nike Rebound & Boeing Strength
12:09 – Venezuela, Oil, and Market Reactions
Transcript:
Caroline Woods: Joining me now, Dan Niles, Founder and Portfolio Manager at Niles Investment Management. Dan, thanks so much for being here.
Dan Niles: My pleasure, Caroline.
Caroline Woods: So, Dan, we’re kicking off the first full trading week of the year. We have what I spending fed policy, geopolitics, midterm elections all in play this year. How should investors be thinking about both risk and opportunity as we head into the new year?
Dan Niles: Well, I mean, I think this year is going to be incredibly choppy. I think what we saw in the last two months of the year is kind of indicative of what all of 2026 is going to look like, in the sense that you saw a lot of more discernment around the AI trade. People started to question, you know, is OpenAI going to be able to come up with the 1.4 trillion in commitments that they have over the next eight years? And if they don’t, then who’s going to get impacted by it? And so I think you saw a lot of volatility obviously in names like Oracle or Core, wherever you pick your favorite. And I think that’s going to continue in 2026 because I think investors are figuring out not everybody is going to win. And the market for the last three years since ChatGPT was introduced assumed that the second big driver beyond AI for the last three years has obviously been easy money. And you know, the fed stopped hiking obviously three years ago, and they’ve been cutting for the last two years. And the S&P is up over 80% over the last three calendar years as a result of that. And the fed went into quantitative easing, QE lite, if you want to call it, purchasing 40 billion in Treasury bills starting in December, you’re going to get a new fed chairman in May. The only way he’s going to get appointed is if he wants to cut rates by at least another 100 bips. And so that easy money that’s been really powering the markets for the last three years, you know, that’s probably going to continue. And so you have this push-pull between more discernment and AI and easy money on the other side.
Caroline Woods: You’re expecting an incredible amount of choppiness. But would you say that this is a market that’s more fragile or more resilient right now?
Dan Niles: I think it’s a little bit of both. As I said the last two months, you saw that, right? You saw Oracles and Core Waves getting killed. But you saw the overall market being able to hang in there. And so for me, I’m dealing with the market that’s sitting right in front of me. I’m not trying to forecast out a full year. I’m sort of looking at, well, how is the market reacting to news? Because it’s never the news. It’s always a reaction to the news. And we are in year four of this AI CapEx buildout. And as we talked about earlier, everybody’s not going to win. If you go back to the internet bubble, when that finally broke, Nasdaq went down 78%. I don’t think we’re there. I think we’ve got another 1 to 2 years of pretty strong CapEx spending in AI. But I also do think sometime this year you’re going to have one of these more marginal players not be able to get the funding that they need, and when that day happens, you’re going to have a big problem in this AI trade.
Having said that, easy money helps drive the entire market outside of that. And if you look at The Magnificent Seven as an example, five out of the seven names in that group actually underperformed the S&P this year, which investors may not be aware of because Google was up so much, up over 60%, and Nvidia was up pretty nicely as well. It kind of masked a lot of that. So for me, I think the market’s both fragile because of the AI trade getting more discernment but also more resilient because you have all of this easy money coming into the market. And so even if you have an issue within that AI space where some names are continuing to get hit, I think the rest of the market may actually do okay, just because you have more easy money being jammed into the market, which in and of itself inflates a bubble further. When you’ve got valuations at record levels by some measures, like enterprise value to sales for the S&P or market cap to GDP or price to cash flow, there are a lot of metrics that are even higher than they were in 2000. And so that introduces a lot of fragility if you do have a selloff that starts.
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