Dan Niles Says Microsoft (MSFT) AI Capex Is Slowing Down

We recently published a list of 10 Stocks on Analysts’ Radar Amid Tariff Turbulence. In this article, we are going to take a look at where Microsoft Corp (NASDAQ:MSFT) stands against other stocks on analysts’ radar amid tariff turbulence.

Dan Niles, Niles Investment Management founder, predicted in a CNBC program earlier this month that unlike previous market crashes, the latest market volatility of 2025 could see a quick resolution because it was “self-inflicted.”

“Unlike prior drawdowns that you’ve seen, like the global financial crisis, you’re not going to fix the problem in a day because you’ve accumulated tons of bad mortgages. You’re not going to fix COVID because it’s a global pandemic in a day. You’re not going to fix the tech bubble meltdown because you overinvested for 5 years back in the late 1990s. This you can literally fix overnight if everybody, you know, resettles the tariffs because this is a self-inflicted wound.”

However, this does not mean Niles is bullish on the market in the long term. He still has valuation concerns and reiterated that he entered the year with cash as his biggest holding. Niles said his top five picks do not include any of the Mag. 7 companies, and he would remain cautious on valuations:

Asked about his preferences in the current market environment, the analyst warned investors to steer clear of high valuations and big promises that lie far into the future:

“I would focus on is which companies are generating a lot of cash, which ones tend to pick up market share during recessions. Those are the types of names that you want to be in because if you’re in stuff where, well, you know 10 years from now it’s going to be a big market, you’re going to get absolutely murdered if you get into a recession,” Niles said.

READ ALSO 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In

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Microsoft Corp (NASDAQ:MSFT)

Number of Hedge Fund Investors: 317

Dan Niles, Niles Investment Management founder, reiterated in a latest program on CNBC that AI capex is slowing down. Niles gave the example of Microsoft Corp (NASDAQ:MSFT) to prove his point:

“If you look at Microsoft, for example, which is the biggest capex spender out there, they’re going to spend over $80 billion this year. People look at that and they go, wow, fiscal year 25 capex this year is going to be up over 50% from Microsoft, and you get all excited and go, wow, it just shows capex demand is strong.

If you look at it on a sequential basis—because remember, Microsoft’s fiscal year ends in June—on a sequential basis, capex was growing about 16% on average each quarter of last year. They have guided to flat sequential growth for the next two quarters.

And so that’s why, and you can see that in a lot of the companies, whether it’s Amazon or the other big names out there. It’s just looking at the math, not me, and you go, well, that’s slowing down.”

Generation Global Equity Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q4 2024 investor letter:

“Microsoft Corporation (NASDAQ:MSFT), the world’s largest software company, has been in the portfolio for over a decade. We like the firm because its products align closely with society’s evolving needs. As the world digitises, demand for Microsoft’s tools will continue to grow. The company enjoys a wide economic moat – built on its unique market position, deep customer understanding and extensive global footprint.

Microsoft’s management team has a long-term vision. It makes bold investments in future growth, most recently in AI. We forecast that the IT intensity of the economy will double over the next 15 years. Microsoft is a rare company with USD 250 billion in revenues, projected to grow at 16% annually over the next five years.14 Earnings-per share could grow faster. Despite its near-term valuation appearing high, we believe Microsoft is well positioned to lead in the AI era, potentially doubling or tripling its market share. Additionally, we expect returns on capital (ROC) for its AI related investments to match historical levels, despite market scepticism.

There are risks. Demand for AI systems may not materialise as expected, and increasing pricing power among suppliers like Nvidia could pressure margins. Still, from our analysis we see substantial long-term value in this name.”

Overall, MSFT ranks 2nd on our list of stocks on analysts’ radar amid tariff turbulence. While we acknowledge the potential of MSFT, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.