Dan Niles argues that the AI market has not reached its peak, citing the potential of agentic AI, which utilizes 10 to 100 times more tokens than standard inference. Despite this, he advises investors to maintain higher cash reserves due to rising costs in debt and equity markets and slowing growth at AI-native companies.
The financial strain is evident in CoreWeave, which issued $1,25 billion in unsecured 2032 notes in June with a 9,625% coupon. These notes yielded approximately 15% this month, and the company's stock dropped 36% since early October. Additionally, Anthropic saw its quarterly revenue growth decline from 145% in Q2 to 45% in Q3.
Niles highlights political risks, specifically potential moratoriums on data centers that could impact cloud growth guidance. Recent examples include NextDC, whose stock fell 39,5% on October 21 following power delays, and Amazon, which canceled plans for four data center buildings on a $427 million campus in Virginia.
Data Center Watch reports that opposition blocked or delayed US projects valued at $68 billion between April and June. Market participants are now awaiting earnings reports from Microsoft, Alphabet, and Amazon, which will be released between October 28 and October 29, to assess future capital expenditure and cash flow.
