Everything 'Rips Higher' EXCEPT This: Fund Manager Warns After Calling Rally | Thomas Hayes

Hyperscaler profits are largely accounting fiction

60% of Alphabet and Amazon's combined net income came from mark-to-market gains on AI equity stakes like Anthropic, not operating improvements, while 34% of total income across the five largest hyperscalers was similarly non-operating paper gains.

Valuations exceed dot-com extremes

Anthropic filed for IPO at $965 billion (35x sales) while SpaceX trades at 100x sales despite burning $5 billion annually, compared to Google selling $80 billion in stock—the largest US equity raise ever—to fund AI capex after exhausting cash flow and debt capacity.

Retail euphoria mirrors 2021 tech top

Retail call buying sits at pre-2022-tech-wreck extremes alongside record margin debt and collapsed put skew, indicating investors are refusing to buy 'record cheap' downside protection exactly when they need it most.

War resolution will trigger violent rotation

Hayes predicts the Iran conflict will resolve before the election, causing oil, yields, and AI stocks to drop while the 'everything trade'—sectors that have languished for 8 weeks—rips higher as inflation expectations fall and rate-cut odds return.

Shift from AI builders to AI adopters

While hyperscalers face years of margin compression from unsustainable capex, traditional industrial and manufacturing businesses adopting AI will see margin expansion, making them the superior play once the current bubble deflates.

Summer/fall entry points ahead

Calling the current rally the '4th or 5th inning,' Hayes advises waiting for a correction to buy AI stocks, warning that retail investors buying at these levels will become 'bag holders' when the 'buy the rumor, sell the news' moment arrives.

Fed trapped until war ends

The Fed cannot cut while war-driven energy prices keep inflation above trend, but Hayes expects rate cuts by year-end once geopolitical resolution allows inflation expectations to normalize.

Government stakes reserved for national security

While Bernie Sanders proposes 50% public ownership of AI companies, Hayes argues government equity should be limited to national security-critical situations like Intel or nuclear infrastructure when private markets fail, not as standard industrial policy.