Niles Sticks With Alphabet and Meta, Cites Google Cloud's 80%+ Growth

Alphabet and Meta Platforms remain picks of Dan Niles, founder of Niles Investment Management, who still favors both stocks. He points to Google Cloud growth of more than 80% and Meta's Muse AI agent, while Nvidia nears a $6 trillion valuation.

Nvidia reached a record high on October 2, reflecting how much investors are willing to pay for AI chips. The more difficult issue is who will earn a return on the AI spending behind those chips.

Why Dan Niles Remains Positive on Meta Following the Rally

Niles said he first highlighted Meta on September 7, when the stock was down about 7% for the year to that point.

On September 8, Meta unveiled Muse, an agent that browses the web and handles tasks for users. Niles says Muse now ranks above ChatGPT in the App Store.

Google, Microsoft, and Amazon already lease AI computing power through their public clouds. Meta does not offer that yet, and Niles considers a cloud arm its next opportunity to generate revenue from AI spending.

After the run-up, he is less enthusiastic about the stock than he was in September. He still sees momentum, though, and JPMorgan's Meta price target climbed to $920 from $820 last month.

Can Google Cloud's Expansion Offset the Search Concerns?

On July 22, Alphabet said revenue from Google Cloud reached $24.8 billion in the second quarter, up 82%. Niles called that the fastest acceleration among Google, Microsoft, and Amazon.

In the same quarter, Google Search and other revenue increased 17% to $63.3 billion, despite worries about AI disruption.

Still, Niles identified one gap. Google does not yet have a rival agent, he said, while OpenAI has launched its Dots agent.

On search, he said investors should keep watching the data.

“You got to watch the numbers and make sure there’s not some issue with search.”

Alphabet's cloud backlog, defined as signed customer commitments not yet booked as revenue, reached $514 billion in June. Combined with Muse's climb in the App Store, that backlog tests whether customers will pay for the AI running on those chips.