Oct 14, 2026 · 45 min
Investors rotate from AI leaders toward bonds and defensive stocks
Great Rotation Happening Now: This Sector ‘Is Over’ | Thomas Hayes
The episode examines whether expensive AI bets and rising bond yields are exposing a broader market shift beyond headline technology indexes.
- 1Semiconductor margins face pressure as global competition grows and cheaper open-weight AI models challenge spending assumptions.
- 2Bonds, dividend payers, utilities, staples, health care, and REITs are gaining appeal as equity valuations compress.
- 3Small caps could benefit from manufacturing strength and cash moving out of money-market funds, despite refinancing concerns.
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Hayes links the current two-speed market to 1999, arguing that a powerful technology trend can persist even while its eventual risks grow.
The brief
Tom Hayes argues that the crowded AI and semiconductor trade is entering a new phase: high margins attract global competition, while falling model costs weaken the spending story.
The discussion moves from technology’s hidden bear market to a defensive rotation into Treasuries, dividend payers, utilities, staples, health care, and REITs as yields stabilize.
Hayes says rising Treasury yields reflect several forces at once, but bonds increasingly compete with stocks when equity earnings are uncertain and growth expectations remain elevated.
The conversation turns more constructive on small caps, where weak relative performance, improving manufacturing activity, and substantial money-market cash could support a broader rally.
The episode’s central tension echoes 1999: technology leadership can remain powerful in the short run even as investors search for protection from a less favorable long-term outcome.