Has the market leadership story changed, and are investors looking in the wrong places for AI opportunities?

In this NYSE Live interview, Thomas Hayes, Chairman and Managing Member of Great Hill Capital, discusses the ongoing rotation beneath the surface of the market, investment opportunities beyond the Magnificent Seven, declining interest rates, and why he believes the next phase of the AI trade belongs to companies applying AI rather than simply funding it.

Kristen Scholer spoke with Hayes about value investing, market breadth, small caps, AI beneficiaries, interest rates, sector rotation, and his outlook for stocks through 2027.

A major theme throughout the conversation is the shift in market leadership. Hayes argues that since October, investors have increasingly favored value-oriented stocks over growth names, with many overlooked sectors outperforming some of the market's most heavily owned technology and AI-related companies.

The interview also explores the importance of market breadth. While headline indexes remained relatively resilient earlier in the year, Hayes notes that many stocks beneath the surface experienced significant corrections, creating opportunities in businesses that were largely ignored during the height of the AI-driven rally.

Another key topic is earnings growth. According to Hayes, a broader set of companies outside the Magnificent Seven are now generating stronger earnings growth rates, helping drive investor interest toward previously overlooked segments of the market.

The conversation further examines the distinction between AI infrastructure providers and AI beneficiaries. Hayes believes the largest long-term opportunities may not be with companies spending heavily on AI infrastructure, but rather with businesses successfully using AI to improve operations, reduce costs, and increase profitability.

A significant focus of the discussion is valuation. As investors become more selective, Hayes argues that valuation metrics are once again playing a larger role in stock selection after a prolonged period in which AI-related enthusiasm dominated market sentiment.

The interview also highlights opportunities in companies that have undergone substantial restructuring or strategic repositioning.

Another major theme is the application of AI within traditional businesses. Hayes favors companies using artificial intelligence to improve margins, automate workflows, reduce expenses, and enhance productivity rather than firms absorbing the largest infrastructure costs associated with AI development.

The discussion also explores PayPal, which Hayes identifies as an example of a company leveraging AI to drive efficiencies and improve operating performance. He views these types of applications as potentially more attractive than highly capital-intensive infrastructure investments.

Additionally, Hayes points to businesses benefiting indirectly from AI-driven growth. Companies involved in energy supply, communications infrastructure, and industrial modernization could experience long-term demand growth as AI deployment expands throughout the economy.

The interview further examines Crown Castle, which Hayes views as a beneficiary of communications infrastructure demand due to its extensive tower network and evolving opportunities tied to wireless connectivity.

Another key topic is Etsy, which Hayes believes is benefiting from improving user engagement, platform enhancements, customized recommendations, and growth opportunities tied to AI-assisted product discovery.

The conversation also touches on QXO, highlighting opportunities within industrial consolidation, operational efficiency, and AI-enabled business transformation.

A significant focus is the outlook for interest rates. Hayes believes declining long-term yields could create favorable conditions for small-cap equities and other market segments that have lagged in recent years.

The interview further explores opportunities beyond U.S. large-cap growth stocks. Hayes expects investors to increasingly evaluate value-oriented securities, smaller companies, and international equities that may trade at more attractive valuations.

Another major theme is historical market performance following election cycles. While headline returns may become more moderate, Hayes believes stock selection and sector positioning will play an increasingly important role in generating excess returns.

Looking ahead, Hayes expects value stocks, small-cap companies, international markets, and businesses effectively applying AI in their operations to remain attractive investment themes.

Throughout the discussion, Hayes shares insights on artificial intelligence, value investing, small caps, market breadth, earnings growth, sector rotation, communications infrastructure, digital transformation, interest rates, and equity market strategy.

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