Great Rotation Happening Now: This Sector ‘Is Over’ | Thomas Hayes

Thomas Hayes (0:00)

The commodity trade within the AI trade is done, okay? Utilities, staples, healthcare, predominantly defensive groups, are starting to get bit in the last five sessions and bit 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 gonna sit back and say, Oh, Micron, look at those margins. Congratulations, you beat us to the game. As if this was gonna 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.

David Lin (0:47)

This year's biggest market rotation that investors have been waiting for is now happening. The laggards and losing sectors are finally catching a bit. At 5.2% 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 like huge opportunities for growth. Right now on Kalshi, there's a 22% chance that the S&P closes between 8,000 to 8,200 points by the end of the year. If you agree with those odds, a $50 trade could yield a payout of $206 if you're right. This video is sponsored by Kalshi, the largest prediction market in the United States. Unlike a sports book, your trading peer-to-peer are real world events from economic data to political outcomes and the price moves based on public opinion, not a house. Go to the link in the description down below or scan the QR code here and use my code Lin. New users who use my code can get $25 in app credits when they trade $25.

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Welcome back, Thomas. Good to see you again.

Thomas Hayes (2:20)

Great to be with you, David. Thanks for having me.

David Lin (2:22)

Well, we're speaking on Tuesday, October 13th. And right now, in American markets, the S&P 500 is down slightly. The NASDAQ is flat down. And yeah, it looks like things are holding steady on the stocks front. However, if you look overseas, we have a situation where the Kospi has been selling off rapidly. So as you're aware, the Kospi fell 5.5% pretty much overnight. It's been falling in the last couple of days. Chip makers are facing a deep slump after reports of rapid tech progress by Chinese rivals, specifically in the chip sector.

Meanwhile, chip stocks are dropping in early trading in the US as well. Micron is down 6% and it was one of the heaviest weightings in the S&P 500 All right. Chinese rivals have a lot of chip makers spooked.

What is going on here?

Thomas Hayes (3:22)

Well, I mean, David, what I can't understand is why the hell is anyone surprised? I mean, it's a commodity. 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. They're all yours. You take all the margins. I mean, you can't make this stuff up 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. I mean, look, when this game started at the deep seek moment, what was the whole narrative for the first year? You can't run, you cannot run AI on CPUs. It has to be on GPUs. Therefore, NVIDIA is a monopoly. Well, shortly thereafter, they figured out inference where you could do close to the same amount of work at a much lower cost using CPUs and it changed the game. And we happened to be in a stock called Intel when everyone said they were going out of business at 19 bucks. And it went up 5X. OK, so now you got the same thing going on with memory and Micron and SanDisk. Look, the story of semiconductors and memory is the same every four years. You have a shortage, they increase capacity, competition comes on board just in time for demand to go down, and the stocks collapse, and you can't make it up.