Investor Dan Niles says he’s sold out of his favorite tech stock ahead of earnings. Here's why

Published Fri, Oct 22 20217:13 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Hedge fund manager Dan Niles told CNBC on Friday he's sold one of his favorite technology stocks before the company reports earnings next week, characterizing the trade as a way to reduce risk. In an interview on " Closing Bell ," the Satori Fund founder noted the decision to dump Google-parent Alphabet came as the stock was up big on the year. After falling 3% Friday, Alphabet shares have advanced 57% so far in 2021. "That's been our favorite internet stock, but we're like, 'The thing is up a lot," Niles said, adding there's justified concern about a broad slowdown in advertising spending. Those worries spread further across Wall Street after Snap 's disappointing third-quarter revenue numbers were released following Thursday's close. Snap's own stock was crushed, plunging 25.6% Friday, while rival social media firms Facebook and Twitter fell 5% and 4.8%, respectively. Digital ad companies like The Trade Desk also were hit. Snap attributed its softer-than-expected ad sales to Apple 's iPhone privacy changes and the supply-chain bottlenecks, which it said has caused customers to hold back on spending since they didn't want to promote products that may not even be in stock. The vast majority of Alphabet's revenue comes from advertising, whether it's on YouTube or in results on Google's search platform. Alphabet may not be as affected by Apple's changes as pure-play social media companies, Niles suggested. "If you can't get the measurements you want off Apple, well, why not advertise on Google?" he said. "The problem is, the other part of the issue, is that if you don't have a product to sell, you're not going to advertise and that affects Google also," he continued. "From our perspective, that's why we decided, 'You know what, we don't need to take that risk into earnings." In a busy week for tech results, Alphabet is scheduled to release third-quarter numbers after Tuesday's market close. A day earlier, Facebook is set to report quarterly figures, while Apple and Amazon's results are slated for Thursday evening. "This is one of those situations where everybody is leaning bullishly, including ourselves up to a couple of weeks ago, on these internet ad names, and now you really have to think about it because when the data tells you something is changing, you should change," Niles said. More generally, Niles said his fund his "sitting on some cash in the portfolio" and currently has more short positions than longs. "We're happy the market is where it is near record highs, but we think we'll have a chance to buy back a lot of our favorites like Google or energy or banks a little cheaper as we get into November," he said. Watch the full interview with Satori Fund's Dan Niles above.

Investor Daniel Niles.

John Chiala | CNBC

Hedge fund manager Dan Niles told CNBC on Friday he's sold one of his favorite technology stocks before the company reports earnings next week, characterizing the trade as a way to reduce risk.