Tech investor Dan Niles predicts AI stocks will crash by 30% to 50% in 2027

Tech investor Dan Niles says the AI trade could be headed for a painful reset.

On an episode of the “Master Investor Podcast” on Tuesday, Niles, the founder and portfolio manager at Niles Investment Management, said that he believes AI-linked stocks could fall 30% to 50% in early 2027 after what he sees as an unsustainable surge in enthusiasm, capital spending, and market concentration.

“What do I think happens to these stocks sometime early next year from wherever they get to? They probably go down 30% to 50%,” Niles said.

Several other high-profile investors have also warned that the AI boom looks overheated, though many have stopped short of predicting a crash as severe as the one Niles expects.

“Big Short” investor Michael Burry recently said he expects “new highs and big drops” rather than an immediate collapse, while veteran venture capitalist Bill Gurley has warned the sector faces an eventual reset as AI companies burn through cash and valuations become harder to justify.

Niles’ core argument is that the AI boom is still alive, but the next phase will be more volatile.

He said the industry is entering a new wave of demand led by agentic AI, which can perform multi-step tasks rather than simply answer prompts. That shift, he said, will require more computing power dramatically and could keep the rally going in the near term.

But he warned that the same setup could eventually trigger a sharp reversal.

“We’re entering year four of this buildout,” Niles said, comparing the current moment to 1997 and 1998 during the internet infrastructure boom rather than the dot-com peak in 2000.

He said the market is still being supported by AI enthusiasm and easier monetary conditions, but that investors are likely underestimating how quickly sentiment can turn.

He also said semiconductors are already looking stretched after a huge run, even if they remain attractive over the long term. In the short term, he said the sector is “overbought,” and that a pullback would not surprise him.

Niles singled out Google as his top mega-cap pick over the next three to five years, saying it has the “full stack” of AI assets, while warning that not every company tied to AI will win.

“My advice would be just be nimble and don’t get too greedy on the way up,” Niles said. “Look at what happens, but then look at how the market reacts to what happens because that’s what’s important.”