Warren Pies, co-founder and strategist at 3Fourteen Research, says he is back to overweight equities after the Fed's September rate hike because the AI buildout looks stronger than the macro risks.
In this Full Signal conversation, he explains why he favors hyperscalers and semiconductors, and what could break the trade.
I sat down with Pies on Full Signal after a sharp swing in his equity call. He downgraded stocks on August 10, when the S&P 500 was at 7,753, then moved back to overweight once the Fed hiked.
Why Pies went back to overweight after the Fed hike
Pies said he downgraded because he thought the market underpriced the odds of a September hike and the risk of a full tightening cycle. After the Fed moved, he read the messaging as roughly two hikes in total followed by a long pause.
He compared the setup to 1997, when the Fed hiked once, paused and later cut. In that cycle, Pies said, the market dipped 6% off the first hike and then moved higher.
Pies pointed to the Fed's latest projections, which he said show core PCE inflation at 3.4% and unemployment holding at 4.1% through 2028. He expects data revisions, including portfolio management fees, to shave a couple of tenths off PCE, and said the Fed has set "a very high bar" for more hikes.
The futures market, he noted, is pricing four hikes, compared with three cuts before the Iran war began. Opening Bell Daily has also covered why history says a Fed rate hike won't kill a bull market.
Why AI leadership matters more than market breadth
Pies argued the index is now so tech-heavy that it will take "more than a couple hikes to kill the AI story." He said semiconductors are almost 20% of total market cap and are "the beating heart of the AI trade."
On the broadening-out debate, Pies was blunt. "We're all in on the AI trade," he said, and he does not expect rotation into the rest of the market to carry the S&P 500 to significant new highs.
He said megacap tech and semiconductors rising together could lift the S&P 500 to about 8,000 over the next couple of months. That is his view, not a forecast from Opening Bell Daily.
He added that he would start to question the overweight call if semiconductors broke back below their July lows.
GPU availability and rental rates as real-time AI signals
Pies's firm has tracked on-demand GPU availability across cloud providers since 2023. A reading of zero means no chance of getting a chip, and 100% means a loose market.
He said availability tends to lead rental rates, which makes both better real-time reads than backward-looking earnings.
"You cannot get a Blackwell right now on demand," Pies said.
He added that B200 rental rates are up 30% this year and argued that hyperscaler cloud revenue estimates are understated. Pies said he considers the return-on-investment debate over AI spending settled.
How AI spending is raising the economy's speed limit
Pies argued the AI capex boom, which he put at roughly 3% of nominal GDP annually, is lifting the neutral interest rate. In his words, the speed limit for the economy is going up.
He pointed to the Fed raising its 2028 fed funds estimate by 50 basis points to 3.8% as a sign it is acknowledging that shift. He called it unprecedented to see the Fed cutting into a capex cycle.
The risks Pies is watching
Pies said the Fed can still reach the AI story through venture funding. In the 2022 hiking cycle, he said, rolling 12-month VC funding fell by almost 70%, and his worst-case math puts about 25% of frontier lab annual recurring revenue at risk if startup funding tightened that way again.
He also warned that unusually low correlations across S&P 500 stocks mean a macro shock could push them down together.
He flagged midterm election risk, growing bipartisan data center pushback, and the possibility that a calm market reaction encourages the Fed to hike more than he expects.
Where Pies sees opportunity
Pies said he currently likes hyperscalers more than semiconductors, though he expects the two to move together in the next leg higher. Outside tech, he named healthcare as a favorite sector and energy as a hedge.
Tune in to the full conversation with Warren Pies on YouTube, Spotify and Apple Podcasts.
For more on how investors are handling the Fed's first hike in three years, read Investors have already moved on from the Fed's first rate hike in 3 years, and subscribe to the free Opening Bell Daily newsletter for a daily briefing on stocks, macro and Wall Street.
This article is for informational purposes only and is not investment advice. The views expressed are those of Warren Pies and do not represent Opening Bell Daily.