Episode summary
Great Rotation Happening Now: This Sector ‘Is Over’ | Thomas Hayes
The David Lin Report
· · 45 min · Hosts: David Lin · Guests: Thomas Hayes
Summary
Thomas Hayes argues that the AI trade is splitting in two: the crowded commodity side, especially semiconductors and memory, is rolling over, while the businesses that use AI to cut costs and raise margins still have room to run. He says the recent weakness in chip stocks reflects the basic supply cycle — higher prices attract more supply — and that investors are now seeing the end of the easy money phase in the hardware-heavy part of the trade.
He also says the market is in the middle of a major rotation beneath the surface. Defensive sectors like utilities, staples, health care, and rate-sensitive names are starting to bid, while bond yields are becoming more attractive relative to equities. In his view, the S&P 500 can look flat even as there are large opportunities outside the headline indexes, especially in smaller companies and beaten-down sectors.
Hayes points to names and themes he favors: Comstock Resources as a low-cost natural gas producer, Alibaba as a cheap AI and Asia recovery play, Crown Castle as a beneficiary of tower demand, and Brad Jacobs-led rollups tied to housing and industrial consolidation. He expects small caps, value, international equities, and bonds to outperform over the next 6 to 12 months as capital rotates away from the most crowded trades.
Key takeaways
- Thomas Hayes says the commodity side of AI is “done” for now, with semiconductors and memory vulnerable as supply catches up to demand.
- He expects utilities, staples, health care, and other defensive sectors to keep gaining as investors move into bonds and rate-sensitive assets.
- Hayes argues small caps are positioned for a strong rebound because they are underowned, more nimble, and supported by $8 trillion in money market funds.
- He thinks the best AI exposure is through businesses that use the technology to expand margins, not the capex spenders financing the buildout.
- Hayes says his housing exposure is centered on Brad Jacobs-led rollups, which he believes can benefit whether rates stay high or eventually fall.
Notable quotes
“The commodity trade within the AI trade is done”
“High prices cure high prices”
“AI is just getting started. But the key is who are going to be the winners and who are going to be the losers”
“I think you're going to see the absolute opposite of that over the next 9 months”
How the episode opens
The commodity trade within the AI trade is done. Okay. Utilities, staples, healthc care, predominantly defensive groups are starting to get bid in the last five sessions and bid in a material way.
Why the hell is anyone surprised? High prices cure high prices. Did you think the Chinese, the Koreans, and the Japanese were going to sit back and say, "Oh, Micron, look at those margins.
Congratulations. You beat us to the game. as if this was going to happen in perpetuity and they wouldn't flood the market with memory and flood the market with commodity semiconductor chips.
History would suggest is that those who are investing in the capex are not going to be the biggest winners and often more often than not historically speaking they were the biggest losers. This year's biggest market rotation that investors have been waiting for is now happening. The lagards and losing sectors are finally catching a bit at 5.2% 2% on the US 10.
Your money is shifting into bonds and chip stocks once the market leader are now selling off. What's next to sell off? And where does that capital rotate to next?
And what happens once AI capex financing slows down? Thomas Hayes is a hedge fund manager and he's back to answer all these questions and reveal to us the stocks and sectors he's buying now. He's a managing member of Great Hill Capital and the author of Hedge Fund Tips, which has an online newsletter as well as a number one podcast in the hedge fund space.
Thomas is going to explain why stock market indices may not see stellar returns, but underneath lie huge opportunities for growth. Right now on Kowi, there's a 22% chance that the S&P closes between 8,000 to 8,200 points by the end of the year.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai trade
- stock and bond rotation
- semiconductor selloff
- bond yields rise
- ai bubble vs 1999
Companies and tickers mentioned
- Kalshi
Watch the episode
Watch “Great Rotation Happening Now: This Sector ‘Is Over’ | Thomas Hayes” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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