Fund Manager Called Tech Wipeout, Now Revels Next Great Rotation | Thomas Hayes
Speakers
Thomas Hayes
— Co-founder, Crypto Is Macro
David Lin
— Founder & Host, The David Lin Report / ex-Anchor, Kitco News
Summary
Thomas Hayes, Managing Member of Great Hill Capital, argues the recent tech and semiconductor rebound is a dead cat bounce to sell into, as institutions meet redemption requests. He favors rotating into a consumer barbell: healthcare and consumer staples defensives plus consumer discretionary, with specific longs Dentsply Sirona, Diageo, and Disney. He also expects a weaker dollar and stronger yen over the next couple of years and would wait for a deeper semiconductor drawdown before buying the AI trade again.
- Recent AI/semiconductor rally is called a dead cat bounce with institutional selling expected into retail strength.
- Hedge fund losses and redemption pressure may force further supply in the coming weeks and months.
- Preferred rotation is into defensive and consumer areas: healthcare, consumer staples, and consumer discretionary.
- Utilities are avoided because they became linked to the AI trade.
- Specific longs include Dentsply Sirona, Diageo, and Disney, each with company-specific turnaround or value reasons.
- Thomas expects a weaker US dollar and stronger Japanese yen over the next couple of years.
- The AI thesis is viewed as mid-innings, but he wants to buy semiconductors after another deep drawdown.
- AI infrastructure securitization is flagged as a future collateral problem, but not a near-term trade.
Ideas
Sell the semiconductor AI dead cat bounce.
The recent violent rebound in semiconductors, memory, and the AI trade is a dead cat bounce after the July waterfall. Positioning was record crowded, retail call buying hit all-time highs, major hedge funds took large July losses and face redemption requests, so institutions are using the bounce to sell into retail strength. Most semis and memory names have not made new highs, and revenue/earnings expectations are at extremes similar to 2022 and 2000.
Short USD/JPY for stronger yen, weaker dollar.
The US and Japan are now aligned, and the yen will either naturally or through intervention stabilize and appreciate relative to the dollar over the next couple of years. The carry trade is already being mitigated, and he wants to play a weaker dollar and stronger yen despite short-term countertrend moves.
Buy consumer staples, healthcare, and discretionary.
Consumer confidence is starting to turn up from multi-decade or all-time lows, unemployment is still only 4%, and energy prices are rangebound. Defensive areas such as consumer staples and healthcare are washed out, while consumer discretionary is at roughly 10-year relative lows versus the S&P 500 and has a very low bar. He recommends a barbell of defensive consumer and offensive consumer exposure.
Buy Dentsply Sirona for defensive healthcare turnaround.
Dentsply Sirona is a defensive healthcare company and the largest supplier of dental supplies since the late 1800s. The stock was hit by bad management, but management used a large portion of tariff refunds to buy back stock in the hole, signaling they believe the shares are cheap.
Avoid software due to AI disintermediation risk.
Software is cheap and some names may be generational buys, but AI could fully disintermediate many software business models within five years. Because he cannot be certain there will not be capital impairment, he keeps software in the too-hard box.
Buy Diageo as safe consumer staples turnaround.
Diageo is the premier high-end spirits and Guinness beer purveyor, cut in half from 2021 highs but still generating about $3 billion in free cash flow and growing double digits outside the US. The turnaround under CEO Dave Lewis is fixing the tequila problem. It has 13.4% ROIC, offers a margin of safety, and AI should help margins rather than disintermediate the business.
Buy Disney for experiences and IP monetization.
Disney is a cheap long-term consumer discretionary play. The parks are packed, the new CEO comes from the high-ROIC experiences side, streaming is now free-cash-flow positive, ESPN is valuable, box office is strong, and the company is monetizing its IP library through parks and cruise ships.
