Veteran investor Dan Niles says a new wave of easy money is about to lift AI stocks to fresh highs.
In a new CNBC interview, the Niles Investment Management founder says that an aggressive round of Federal Reserve rate cuts will trigger renewed investor optimism.
He also says the combination of monetary easing and leadership changes at the Fed could extend the current AI boom well into next year.
“I think they’re going to go up a lot for one simple reason. The Fed’s cutting rates after being on hold for nine months, you’re going to get another probably three cuts between now and January. And then you’re probably going to get Stephen Miran being the new head of the Federal Reserve in May, and he wants rates about a percent and a half lower than everybody else.”
He notes that the influx of cheap liquidity will make it easier to finance risky, growth-heavy firms — the kind that dominate the AI trade.
“So in an environment of easy money, you’re going to be able to fund a lot of cash-burning businesses and have everybody be treated like everyone’s going to win.”
But he also warns that investors could face a reckoning once the market begins to separate real winners from speculative hype.
“Now, if you want to look out several years from now, or maybe at the end of 2026 when rate cuts are done, and you go, ‘All right, are people going to get more discerning about these circular investments?’ And are you going to figure out, ‘Well, which AI companies are actually going to win versus the ones that are going to be sort of left behind?’ Then I think you’re going to start to see some problems.”
Still, in the near term, Niles says the dynamic is straightforward: cheap capital fuels speculation.
“Easy money funds a lot of cash-burning businesses.”
Last month, Fundstrat’s head of research, Tom Lee, predicted rallies for the Mag 7 and the AI trade following the Fed’s September rate cut.
“So I’m looking at September 1998 and September 2024 as the playbook, because those are both years where the Fed was on extended pause and they cut in September. The number one trade is the Nasdaq 100. So I think that’s why the Mag 7 and the AI trade get a lot of liftoff.”
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