Dan Niles, founder of Niles Investment Management, says cash is the best investment idea right now in a market that could soon top out. Markets rose on Wednesday, but Microsoft shares fell after The Information reported that the company was cutting sales quotas for software related to artificial intelligence. Microsoft denied the report. Several other AI-related names sank sympathetically. However, Alphabet’s stock price rose nearly 2%. The move was the latest in a volatile fall of AI trading that began after investors became concerned about soaring valuations. “The market is starting to say, ‘We know not everyone is going to win, so we need to start differentiating between the Google conglomerate and the OpenAI conglomerate and look at how many winners there really are. It’s probably going to be two or three, but it’s not going to be 10,'” Niles said in an interview on CNBC’s “Power Lunch.” “That’s why this market feels fragile.” In the technology space, he believes Alphabet’s Google will be one of the companies at the top of the AI race. Alphabet recently released its Gemini 3 AI model and its latest custom silicon chip. GOOGL YTD Mountain Alphabet Another interesting stock year-to-date is Apple, Niles said. There aren’t any particularly good AI products out there right now, but that’s going to change. “Next year we’ll see great products with AI in their systems, and we’ll see flip phones,” he said. Still, the best thing investors can do is stay diversified as the market spreads out into other sectors. Especially since the current tumultuous AI trade and Federal Reserve rate cuts are pushing the market to new highs. According to the CME FedWatch tool, markets have priced in an 89% chance of another rate cut at the end of the two-day central bank meeting on December 10th. But Niles doesn’t expect any further rate cuts after that until a new Fed chair takes office in May. “I have to start thinking about it a little bit more,” he said. “If you’re worried that Dec. 10 will be the last rate cut for the next five months, so Dec. 10 will be the all-time high, cash is not a bad option, barring wide diversification.”
