Dan Niles sees more pain in tech — and reveals an opportunity in the sector

Published Thu, Jun 2 20227:46 PM EDTUpdated Mon, Jun 13 20228:29 AM EDT

Tech stocks may have already suffered a massive sell-off this year, but hedge fund manager Dan Niles thinks there could be even more pain ahead for the sector. He tells CNBC why and reveals where he sees an opportunity in the sector. Tech stocks have taken a drubbing this year as market volatility worsened and investors fled to the safety of safe-haven stocks. That's led many market watchers to believe the sell-off has presented an opportunity for bargain hunters to buy the dip on selected names in the sector. But Niles said he's unconvinced and is staying on the sidelines for now. He's adamant that he "doesn't like" Google parent Alphabet and Amazon . "Amazon has missed [analysts' estimates] at least three out of the last four or five quarters. Same thing with Netflix . And with Google, they have told us that they are not immune from macro challenges. So, I don't want to get in front of that, especially when they have no control over it," Niles said. He said Google's guidance indicates that the company's numbers are "probably going to go lower," while Amazon's e-commerce business is facing rising pressure as people return to malls. Niles also believes Apple is "very expensive" relative to Meta and Alphabet — both of which have well-publicized issues. He also sees more weakness ahead for Apple, particularly in the second half of the year. "I think with Apple, you still got numbers that are going to come down further and I personally think they are going to have a very tough time in the third and the fourth quarters," Niles said. "A lot of us that upgraded [our smartphones] during the pandemic — we are not going to be upgrading during the holiday season this year," he added. "Apple should do better," Niles said, noting that the company operates in the "high-end" consumer market, which he thinks is doing "a lot better" than the lower end. Though he believes it's "good news" that Netflix is venturing into ad-supported subscription plans, he thinks this is "not a particularly good time" for the company to roll out the initiative. "They are doing it from a position of weakness, and it's not a particularly good time to get into that business when everybody is going to be cutting back spending, especially as we head into a recession," Niles said. "That's the real problem — they should have done this last year when their business was booming, compared to now when they're in trouble and fighting a lot of big players such as the likes of Disney , that have big balance sheets and other big businesses to support their streaming business," he added. Chinese internet stocks Niles isn't avoiding the tech sector altogether, however, as he sees an opportunity to invest in the Chinese internet space. "The one area that we are looking at is the China internet names because in that sector, you've seen stocks come down about 73% or so versus the Nasdaq , which is down about 26% from its all-time record high," he said. He noted that many of China's internet names are trading at about half the levels of their U.S. peers despite similar growth. "You are getting paid more to take that risk. And that's why we're trying to balance that with shorts that we think still have some more fundamental downside," he said.