This dot-com survivor says AI build-out is more like 1997 than 1999 - and still urges investors to hold more cash

By Steve Goldstein and Barbara Kollmeyer

Dan Niles says Intel remains undervalued, even after surge in its stock

Investor Dan Niles says the AI buildout still has room to run, yet he's also wary about the stock market.

The riveting gains for microchip stocks have many analysts drawing parallels to 1999, just ahead of the dot-com crash, when the build-out of a key technology led to parabolic moves and frenzied speculation.

To one fund manager who was there, Dan Niles, the closer parallel is 1997.

"We're [experiencing the equivalent of] Years 3 and 4 of the internet-infrastructure build-out," Niles told the "Master Investor" podcast host Wilfred Frost. Niles back then was a highly regarded analyst covering chip stocks and PC hardware, before pivoting to become a fund manager.

To Niles, the founder of Niles Investment Management, the big thing that has happened this time around is the rise of agentic AI, through the release of the Clawd Bot - now called OpenClaw. That's evidenced by the surge in token growth, he said, which in turn suddenly made the CPU chips produced by the likes of Intel (INTC) more valuable.

Niles says that while chip stocks SOX look stretched on a short-term basis, on a longer-term view they're not unfairly valued. "Intel's just gone back to where it was in 2000 this past year," he said. "It's still undervalued relative to what it can probably ultimately earn."

Niles does expect stocks that have ramped higher, by early next year, to fall 30% to 50%, he said. He pointed out that was roughly the experience in 2022, coming off the build-out during COVID, when the Magnificent Seven as a group fell 46%. Just two companies - OpenAI and Anthropic - are accounting for half of the backlog of the hyperscalers, and OpenAI doesn't have the cash flow to fund its ambitions.

"It doesn't make sense that the stock market's at an all-time record high and oil prices are up 60% this year, and the bond market, we saw last week, the 30-year yields and the 10-year yields, hit the highest levels for the year," he said. "One of those is wrong."

"Right now, I'm viewing things as you should be sitting with a lot of cash."

The markets

U.S. stocks DJIA SPX COMP are off to a weaker start, with oil prices (CL.1) (BRN00) up 3%. The yield on the 10-year Treasury note BX:TMUBMUSD10Y is rising.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              7412.84    2.95%   7.65%   8.29%   26.84% 
   Nasdaq Composite                                                     26,274.13  4.81%   13.33%  13.05%  40.44% 
   10-year Treasury                                                     4.431      0.20    17.70   25.90   -4.20 
   Gold                                                                 4708.8     3.09%   -3.20%  8.69%   44.68% 
   Oil                                                                  101.35     -1.30%  10.08%  76.54%  59.28% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Consumer prices for April met forecasts with a 0.6% rise, while core inflation that strips out food and energy rose slightly more than expected, a gain of 0.4%. Annual CPI rose to a three-year high, however, due to higher gas prices. Chicago Fed president Austan Goolsbee will speak at 1 p.m.

President Donald Trump said the U.S.-Iran cease-fire is on "massive life support," calling Iran's counterproposal "a piece of garbage."

EBay (EBAY) has rejected a $55.5 billion takeover bid from GameStop (GME).

BuzzFeed shares (BZFD) jumped 130% on news of a $120 million lifeline for the media outlet from producer Byron Allen.

Wendy's shares (WEN) are up after on a report that Nelson Peltz's Trian Fund Management is looking for investor money to take the fast-food chain private.

Under Armour shares (UA) are dropping after a disappointing earnings forecast.

AST SpaceMobile's shares (ASTS) are dropping after a hefty revenue miss.

Red-hot South Korean stocks KR:180721 tumbled after a top official said citizens deserve a dividend from taxes on AI profits.

U.K. debt, the pound and the FTSE 100 are tumbling on reports that Prime Minister Keir Starmer could imminently face a leadership challenge or step down.

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The chart

Daily Chartbook flags this S&P Global chart that shows an "unprecedented" six-week performance for the S&P 500 Momentum Index, which tracks stocks with high price momentum. "The S&P 500 Momentum has a live history back to November 2014, and a 'backtest' extending back to 1972. Across both live and hypothetical history, the index has never clocked a six-week performance as large as the current +30.5%," says Daily Chartbook. The Invesco S&P 500 Momentum ETF SPMO tracks that index.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   MU      Micron 
   AMD     Advanced Micro Devices 
   INTC    Intel 
   PLUG    Plug Power 
   TSM     Taiwan Semiconductor Manufacturing 
   PLTR    Palantir 
   AAPL    Apple 

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Beyond the news

MarketWatch Picks: I'm 63 with $1M in stock. I pay my adviser 1% - but I'm only getting a 7% return. Is it time to find a new adviser?

-Steve Goldstein -Barbara Kollmeyer

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05-12-26 0935ET