Hedge fund manager Dan Niles is betting on Apple and Meta Platforms as two stocks that can weather a potential recession in the U.S. Niles, who runs an actively managed fund of 20 to 40 large-cap U.S. stocks at Niles Investment Management, stressed that while a recession is not his base case, investors should focus on companies that are able to weather difficult economic conditions. He pointed to current economic indicators such as low unemployment rates, job openings, expected Federal Reserve rate cuts and robust GDP growth as reasons for his optimism that the U.S. could avoid a recession in the near future. However, Niles expressed a more cautious forecast for the broader technology sector and the market as a whole. “My feeling is that for the market as a whole, we have not yet reached the bottom of this correction,” he warned, predicting possible market lows in September as companies reassess their revenue streams and growth prospects. Niles highlighted a shift in investor expectations, noting that companies can no longer rely on the mere mention of AI to boost their share prices. “This quarter went out with a bang,” Niles told CNBC’s Squaw Box Asia on Friday. “They (the companies) have to actually show that they can generate revenue with all these investments they’re making, rather than just talking about how great it’s going to be in five to 10 years.” “I think you have to try to look for names that will come through if we have a recession,” he added. Among the so-called “Magnificent Seven,” Niles singled out Apple and Meta as standout stocks. “Only Apple, which is really not an AI play right now, and Meta, which is using AI the best, only those two stocks actually outperformed revenue (earnings per share) and grew revenue and earnings per share over the four quarters,” he explained. AAPL 1Y Line This is in sharp contrast to other tech giants like Google and Microsoft, which showed no growth in quarterly earnings. Amazon’s share prices fell after the company gave a lackluster forecast, and Tesla shares have been on a downward trajectory since announcing a delay to its robotaxi service. Apple Niles expects strong revenue growth in the coming year as consumers switch to AI-enabled iPhones. “Their revenue growth has been minimal over the last three years because people already have a smartphone. They bought one during Covid,” Niles explained. “I think next year’s revenue growth will probably be double-digit over 10% as people switch to an AI-enabled smartphone.” Niles’ forecast would put Apple’s earnings at the best since 2018, excluding the 33% growth in 2021 due to pandemic-related work-from-home restrictions, according to FactSet data. He noted that this upward trend could continue even in a recessionary environment, albeit at a slower pace, due to pent-up demand after consumers held on to their existing devices for several years. Meta Niles was particularly optimistic about Meta’s prospects, praising its effective use of AI in its core business. “Meta uses AI incredibly well,” Niles said. He highlighted the company’s ability to use AI for content recommendations and targeted advertising, which has contributed to strong financial results. Unlike some other tech giants that have struggled to translate AI investments into tangible results, Niles noted that Meta has successfully integrated AI into its platform. “They use (AI) to recommend what you want to see, and then show you ads that they think you really want to see. And that’s why they beat revenue (and) EPS (expectations), spent more on AI investments, and still brought (projected) numbers up,” he explained. This strategy, combined with potential advertising revenue from the upcoming US presidential election, positions Meta favorably in Niles’ view.
