Satori Fund founder and portfolio manager Dan Niles is long two mega-cap tech stocks into earnings and short another two.
What To Know: Tuesday on CNBC's "Squawk Box," Niles said he expects the upcoming earnings season to be "tricky" for the so-called magnificent seven tech giants.
The magnificent seven are up approximately 96% year-to-date on average versus the equal weight S&P 500 index, which is flat. That creates an uphill battle from the start, he said.
The group of tech juggernauts generates more than 50% of their revenues from outside the U.S. and the dollar is up about 6% since the middle of July, which creates a significant headwind for company guidance this quarter, Niles explained.
"That's where actually a majority of this risk lies as you think about Q3, and more importantly, guidance into Q4," he said.
Still, Niles is long Alphabet Inc GOOG and Nvidia Corp NVDA heading into earnings as he anticipates "beat and raise quarters" from both.
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He noted that Nvidia blew away numbers last quarter and raised guidance significantly, yet the stock is down 4% from the day before the announcement. That's a "warning sign" for this earnings season, especially for companies that don't have the growth Nvidia does, he said.
Investors are going to have to pick their spots among the group. You can't just buy the basket of all seven tech giants and expect that to work given the valuations of some of these names, he said.
Tesla Inc TSLA and Apple Inc AAPL are two examples. Tesla is currently trading with a forward P/E of about 58 and Apple is trading at about 27 times forward earnings, according to Benzinga Pro.
Niles is short both of them, but he specifically picked on Tesla.
"They've got a pretty high bar to clear going into Q4. At the same time, you've got the consumer running out of money in terms of excess savings and then you've got student loans restarting. We think there are a lot of headwinds in the stock," the Satori Fund manager said.
Tech Price Action: Alphabet closed 0.22% lower, Nvidia finished 1.16% higher, Tesla climbed 1.52% and Apple ended Tuesday's session 0.34% lower, per Benzinga Pro.
Photo: courtesy of Nvidia.
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