Tom Lee's Case for S&P 8,000 Has One Big Catch

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4, 5, 8, 9, 8, 9, 9, 9, 10, 1, 2, 1, 0, 1, 4, 8, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9 just as if they were to check out the next checkout. Today's number 70. That's a percentage increase in US adults who listen to podcast weekly compared to 2022. Ed, I've had several people tell me that Michael Symbolus, the chief investment officer of JPMorgan,

put in a note, a research note that he's upset about a vulgar joke I made at the beginning of the podcast that he was a guest on. Michael, we apologize.

“So we are going to have the Michael Symbolus dad joke and that is until I hear from you and that you have accepted my apology.”

I'm just going to do dad jokes. Okay, so you ready Ed? Yeah. Michael Symbolus dad joke is here. What do you call a fake noodle?

What? An imposta. Michael. We love you. Don't be angry at us.

Reach out. Reach out.

“For a given, this is a wonderful thing, Michael.”

I love it. Should we get into our talk today? We have a very interesting conversation with Tom Lee. One of our favorites, the what could go right? Tom Lee, I love Tom.

Let's get into it. At the end of last year, one guest came on the show and laid out a notably bullish case for 226, fast forward to today and the US stock market has indeed performed very well up nearly 9% year to date. But a number of big question marks still loom over the market.

So now that the first half of the year is in the books, we wanted to check back in with

that guest and find out is he still bullish what are investors underestimating and where our markets had it for the second home. So to find out all of this, we are speaking with Tom Lee, who found a managing partner and head of research at fun-strat global advisors. Tom, great to have you on the show.

We wanted to get your H1 review and then your kind of outlook for H2 just to sort of set the stage here. We've got the S&P up nearly 9% and the first half, the Dow up 8% and the Nasdaq up 11% there are certainly some winners and losers among them. You look at the Mag 7 Big Tech which has been kind of punished so far this year.

Also crypto which we will get into in a moment.

But let's just start with your reflections on the first half of the year so far.

Twenty 26 is tracking to be the fourth year of double digit gains. It may surprise viewers but when markets post three years of strong gains, which we've seen 2023 to then 24 to then 25, the fourth year actually tends to be pretty solid. That was one reason we were constructive. And at the start of the year the thought was that the earnings could be the driver of the markets.

And that's been the case because of the start of this year. Twenty 27 S&P earnings consensus and very similar ours was $350. And now it's currently 400. So it's risen by $50.

It's now at 18.4.

So the stock market which might surprise people has actually gotten cheaper now than it was in January,

even though we're 9% higher.

“I think it makes a lot of sense to be constructive here because I do think there's room for earnings”

to further revise higher for the US. The drivers of earnings have remained in place. Part of it is this AI and energy infrastructure build that's taking place. Part of it is this trend towards unsharing. And of course there's still some residual infrastructure spending by the government.

So those are all tailwinds to spending. And I think for the most part investor sentiment has not become a brilliant, but there are two sort of other factors to weigh in now that we're midyear. That margin debt is much, much higher now than it was at the start of the year. In fact, it's risen 55% year of year.

“That is I think the fifth highest year of year increase ever in almost 70 years.”

And historically that's associated with that cohort of traders, you know, that borrow money running out of firepower. But on the flip side, when we look at fund manager performance this year, looking at large cap growth. 76% of fund managers are trailing their benchmark this year, which is a pretty historic number

on large cap blend 60% which is not as historic. So today I would say growth managers probably missed a lot of that semi and DRAM rally.

I think they're going to be chasing it in the second half, which is why I would price state bullish.

I'm anxious about this market in a lot of ways because I look at, you know, the Shiller PE as an example, which is extremely high right now, basically coming up on dot com territory. And I guess there's a distinction between the forward earnings and the trailing earnings that I'm starting to feel is important.

And that is a lot of these earnings that were seeing that they hinge on these contracts with these AI companies who's ability to actually pay out on those contracts. I think it's not unreasonable to say that they should be at least questioned. Open AI and their spending plans on developing their spending plans, space etc. And so at the same time, we've also been looking at some of this research that was coming out

recently, the Goldman actually confirmed, which is that a lot of the earnings that we were seeing, especially from big tech companies, a lot of those earnings reflect the increase in their stakes in their private investments in AI companies. And that is being reflected in the actual earnings themselves because of these accounting standards. Point being, I look at the earnings growth, the earnings growth is really strong,

but I feel a little bit ambivalent about it, especially when they say earnings over the next 12 months are going to be XYZ. I just be interested to hear your views on my, I guess, skepticism. I'm going to agree because I think you're raising questions about quality of earnings. You know, I guess there's a few things that would make me question quality of earnings.

You know, one is balance sheet gains from investments aren't the same as an operating earnings. I think there's a second difference, which is that there is an element of pricing taking place because for instance, you know, in the supply chain for chips, there's companies that can't increase fat production or there's a long lead time, so they can take a price instead.

So now you're going to get more flow through to the bottom line,

but that creates the bowl with effect because we know ultimately this supply chain catches up. And then there is concentrated spenders because we know hyperscalers are writing big checks. And now they're asking equity markets to fund that.

“That's why Google has their ATM, and that's why we're seeing meta potentially do that.”

And of course, you know, SpaceX's IPO, these are all efforts to raise the money from the public markets. And then lastly is that there's consumption of credit taking place. And now we're tapping into another part of the capital structure to fund that. So I think those are all appropriate reasons to be sort of raising the bar on how much multiple you apply to the earnings growth. That being said, I think a lot of the activity is mainly taking place in four countries.

You know, the four countries, of course, are the United States and China. And then it's kind of, say, Korea slash Taiwan, so the AI infrastructure partners. And then possibly like Japan. So the story that's unfolding as much as we might be skeptical really is one where AI is clearly only benefiting a handful of countries.

“So when you look at the, like, the Shilopee for example, I mean, the real question for us right now is, is it frothy?”

And I think it's almost seems like there's there's not a lot of agreement on this, on this point right now, which is interesting. That we're all kind of looking at different metrics and we're all trying to determine is it really bubbly, is it really frothy or is it not? What is your view on that point? Because I think the quality of earnings probably has a role to play in that conversation. One thing that we've done in the past, when I was at JP Morgan, then we continued to maintain it.

Fundstreet is, yeah, you know, you can run a Shilopee by sector. And in that way, it kind of more is apples to apples. Like, for instance, if you did text, Shilopee, then you can sort of judge it. 1929 versus now. Of course, what is a technology company back then is very different because, you know, that was radio makers and microwave ovens at some point.

But by that measurement, the Shilopee is not nearly extended just because the composition of earnings now today is increasingly coming from from tech.

“So tech is probably, I'm sorry, I don't have the exact numbers, but I think it's going to be 60 or 70% of all earnings growth, but it's probably close to 40% of the level of earnings.”

And in 99, that was a true, you know, tech wasn't a big earnings contributor in 99, but it was a big multiple contributor. So I think that compositionally, and the ISM is the same showing the same thing. If you do the split between manufacturing services, we've flipped just in the last 50 years from manufacturing being the majority of activity to only 30%. So I think we have room for the Shilopee to be higher. A fair question, I would add to what you're saying is like, is credit spreads, you know, are is credit underpricing risk because, you know, the 10 years have been going up and I've been surprised at how tight high yield spreads have remained.

And investment grade, you think that with geopolitical risk and the high level of rates that is creating a cost of capital burden that spreads should widen, but they haven't. And, you know, it could. I mean, to me, I'd be watching credit before I watched agrees crack, but I think credit is probably telling us there's actually still too much liquidity out there.

It feels like there's contradictory forces or narratives around the impact or second order effects of some of these big IPOs.

And one of the themes I've seen is it'll soak up a lot of the market or a lot of the capital out there for IPOs. And the other narrative I've seen is that it'll be very constructive for IPOs because it's sort of saying the IPO window is open again.

“Hey, do you, what are your thoughts on that? What do you see is the second order effects of some of these bigger IPOs coming down the pipeline?”

I think there are like sort of three cohorts being affected by IPOs. You know, one is the issuer. The second is the holders of the private companies of these IPOs. And the third is, you know, sort of the broader market. And SpaceX, you know, is a good example.

Their IPO was only 75 billion of a $1.5 trillion company for over one and a half trillion.

So today, the float's only 90 billion. SpaceX as a stock is trading less market cap than most of the NASDAQ 100. You know, it's probably NASDAQ. It's top 50 in terms of total market cap. And that's why it's trading well. But those those shares are going to unlock in phases. But by the end of the year, over a trillion should be available.

I think that that for the public and for the general market, that is a lot of supply. I think the supply effect of SpaceX is going to be as we get to end of this year.

But before that happens, there's massive wealth created because SpaceX only raised 18 billion in its entire history.

And it turned into 1.5 trillion.

Because every bank will lend the money against their holdings.

And so I think it actually boost GDP. So you write Scott, there's countervailing forces. My take is that the broad economy is going to benefit from all these IPOs because it's massive wealth and luck. The stock market will do well until the unlocks happen.

“Because at that point when the unlocks happen, you have to absorb all that supply.”

And the issuers are going to do very well because now they have a way to tap public money and to raise and maybe accelerate spending. So I think issuers will benefit from their IPOs. Let's take on this notion of cat backs and there are second order effects of specifically of these AI companies who've made these extraordinary commitments around cat backs, which I believe is elevated a lot of these stocks.

And I'll put forward a thesis. It looks like OpenAI might be shelving a Type-PO.

I got to think that that means the momentum is shifted or the growth expectations aren't living up to expectations. Do you have any fear that we are starting to see some cracks in the, I don't want to call it the AI bubble but in the AI story. And that would ripple through the markets or you less worried. So a lot of things that can go wrong with the AI story Scott and that because one, as you know that we have to build a parallel amount of power and infrastructure to support all this. Getting all that built is an enormous lift.

I mean, you know, we won't even really know what it means for residential electricity prices, right? Or like environmental damage, you know, or like quality of life if you live around a hyper-scaler data center. And I think that we don't actually know why both anthropic and open AI delayed their IPOs.

I think that's actually very curious because both would benefit from one going public first.

Nobody would want to be last, you know?

“I think it's possible it has to do with the US government throttling new models, right?”

Because you know, like mythos faced a lot of like, you know, scrutiny and then fabled had to get pulled. You know, is it possible the US government is actually saying like, we had to like look at all your models now. And then they got to like throttle their plans. Maybe I don't know. I mean, but to me it's curious, I actually think SpaceX is a huge success. So I don't think SpaceX has anything to do with open AI and anthropic sling their IPOs.

We'll be right back after the break. And if you're enjoying the show so far, tune in on Sunday for our founder series. We'll be speaking with Andrew Duden, the CEO and co-founder of HIMS and HERS. [ Music ] No one could blame you if you thought this man's world cup was going to be a disaster. The president of the United States isn't exactly a welcome map for the world and there have been plenty of embarrassing stories for the country.

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We're back with property markets.

What are they anxious about? I'd like to get you a view on this. I mean it seems as though from a financial perspective, open ey is a little bit of a shitty spot. I mean just to put it plainly from the profitability side.

I mean just the fact that last year they lost almost 40 billion dollars.

If you look at like the operating profitability, they lost around 21 billion dollars last year. What we know about AI at this point is that the revenues are the growth is tremendous. Usage is growing as well. But they're incredibly expensive to both run these models and also to train these models. And we haven't seen that the AI business is actually a profitable business yet.

It's still sort of in the test phase. And so I wonder if open ey, I mean we saw that their financials were leaked recently.

The reaction was a little bit not great just on a anecdotal basis.

I thought the financials were surprisingly bad from a profitability perspective. And I wonder if they're just like investors can't handle this. And we need to figure out our business out before we go out. I'll just be curious to hear if maybe that, if you think that might have played into it. And also what you think of these businesses themselves, the fact that we have was the so much writing on these companies.

And yet they haven't figured out their business models. Okay, well I'm just going to speak my opinion because I don't really have the full facts.

“I think if opening eye was to go public or anthropic, their IPOs would be very, very successful.”

And the reason being is that their stories are pretty straightforward to understand. You know, they don't, they're not a conglomerate. Opening an anthropic are clearly at the forefront of like creating complex reasoning models that are eventually going to become our agents for us. And the public has no access to it, institutional investors don't really have access. I think that their ability to raise money in the private market is still not a problem.

You know, I think that they've had no problem raising tens of billions of dollars. So there, it's probably one reason that they are pausing. Again, I'd say it's curious to me, but I think investors when they look at open-an anthropic aren't looking at this as a subscription business. And you know, they need to see free cash flow. I think they need to see a company willing to spend and recruit to maintain leadership.

Because they are two very unique businesses. But again, I'm not an insider, so I don't know. Do you as an investor like that story personally? This is the thing that I'm trying to figure out because I think I'm with you.

“I think, you know, AI is, you know, it's such an important moment for the markets and these are the two leaders.”

And if it's on the table, why wouldn't you go for it? But I do think that the business model question is still a giant on-answer question. I'd be curious to hear how you view it personally. This is still a story that's being written in the future tense, like we're only a chapter one. At best, we can make guesses on analogies. I mean, for instance, not to fork the conversation, but to me, SpaceX is the most significant achievement they did is they turned satellite spectrum, right?

SpaceX entirely runs on satellite spectrum, starlink and then their future. That was worth pennies compared to terrestrial spectrum. And they made it the most valuable spectrum in the world. So, Elon was able to get all the close spectrum for nothing. Whereas in the USJ, it's like, to get, you know, 20 megahertz wide of cellular, you're paying $200 per person. I mean, that's it. So he took satellite spectrum for nothing and now it's the most valuable spectrum in the world.

Meta took a free business with user-generated content, which was originally just sort of like a yearbook for people, and they turned it into one of the biggest monetization businesses ever. And I remembered when Meta launched the mobile business people didn't think there was anything too. How could Facebook be even better on a mobile because, you know, there was so much richness on the desktop version.

“But that that was the key to them taking stealing the advertising business.”

Open AI andthropic with because of their creation of basically complex reasoning models, who knows what kind of industry they're going to assume.

Like, are they going to be creating biotech labs, you know, of the future, or are they going to create workforces?

I think it's a sort of a story to be told, but I would say when I look at the most valuable companies like Meta and what they achieved or even Google, which took search, right? They really took search to a much different level and and SpaceX taking satellite spectrum.

“I think that that's why there's a not zero chance that these could be massive home runs as IPO still.”

100% agree with you. I think it's I'm glad you bring it up. Do you think, though, that the risk of them of open AI, as an example, not working, that they don't make that home run, that it something goes wrong, Sam Hartman makes the wrong move and they crash and burn in some way. As part of my view is, I feel like that's also a non zero probability that ought to be priced in. Not just in terms of the price of open AI, but also in the price of the markets a lot which have become so dependent in a lot of ways in open AI succeeding and also open AI spending lots and lots of money.

I'm paying for all of this computer and all of these trips. Well, it's an interesting irony because the more successful opening AI becomes two things are apparent. The more important Sam Altman is because it is really him having to as a human make decisions.

“You know, like, I'm sure he's not typing into chat GBT, like what should I do now?”

But the self-actualization of like his strategy requires highly, highly skilled humans.

You know, so like it's a very much a people story to make both amazing companies and you're right.

So you're betting on Sam and his vision and you're betting on anthropics team and their vision. And, you know, it is a two horse race there and they both could be successful too if they fork in different directions. That bet is the thing that makes me anxious about this market that a lot is riding on him and his ability to execute. And to make the AI story actually work. And if it doesn't, it seems to me that the S&P which has risen nearly 9% this year.

Most of that growth is coming from a handful of companies. Not the big tech companies, but the Samies and the Dram companies, the memory companies, all of the sort of chips and shovel stocks that are fueling this AI boom. If that story doesn't work out, if things don't work out the way with the way that we'd hoped. It seems as though you're going to see a very, very significant and violent shift to the downside. But it hasn't happened yet and the story continues to roll on.

I assume that's on your radar.

“I think one thing though, we should keep in mind is that it is where sort of maybe speaking in a narrative sense because even as important as open AI is and anthropic.”

If they were to let's say stumble here, I think S&P earnings wouldn't fall that much short of the 400, you know. But we also have to keep in mind that like one, there's actually one person that every point in history since the 1940s is like the most important person's hand on the market, which is the Fed. The Fed who is their chairman is a single person, like that's a big key man risk.

And you know, it's been amazing because we've never really had a Fed chairman suddenly like being incapacitated from their job.

I mean, I think that's a miracle of capitalism because Kevin Warrish today is actually arguably one of the most important people in the world now. I agree with you, there's there's fragility. I mean, the market is, you know, S&P here, it's 7,300. You know, I just remembered in 2009 the market bottom debt in the 600s. So, you know, I mean, it's definitely come a long way, but fortunately the multiple is lower today than it was in 2009, but you're right. So, you know, what's very different is the US economy suddenly is growing faster for everything you've described, which is because of AI and and that's that's really.

You know, the reason we can be both comforted because it's really happening mostly in a few countries, but then we can be very worried because you're right. It's a, it's creating path dependency on, you know, on a handful of people.

Yeah, there is home run opportunity, as you mentioned, and do I want to miss out on that?

It's kind of the big question, I'll pulse it over to Scott and then we'll get into some of your predictions for the second half of the year.

“So, Tom, you've said that AI is creating a productivity boom, and we have seen an uptake in productivity and not just a technology boom, what industries do you think benefit most from that increase in productivity?”

It's one of the things that is really hard to measure explicitly because I think that what AI has proven is a couple of things. You know, one, and I'm being anecdote, but one is, of course, it makes people a lot more people who are highly capable, very productive, because I've seen that at a funstrat capital and funstrat where we are deploying essentially army researchers, but it's really just our cloud agents and, but it's also revealing the nature of work, because most people say, hey, this is a 40 hour week job.

And from an economic, when we measure economically, we say, oh, you work 36 hours, or, you know, we have like, because they punched a clock or, you know, a 40 hour week, but we know that most people in that 40 hours probably only work, express on the time, you know, what is the actual time people are productive?

Is it six out of the 40 hours a week, you know, it's possible, and most other time people are just searching and eating lunch and, you know, doing other things.

So what AI has done is it's helped fill in all that blank space and created work. And so I guess that's productivity.

“I believe a lot of white collar jobs and even healthcare industries and financial services and tech really meet all that criteria that AI is making all of those people highly productive.”

And they might still, in theory, only be working the same x percent of the 40 hours, but now a lot more is being accomplished. In a couple of years, we know that it shouldn't be too long before we could say, hey, robots are going to be highly skilled with a lot of a dexterity. And people think it's only going to be warehouses and factories, and I think that's true, but I think in a couple years, like residential construction will be transformed. Like I think homes will be built by artists and robots, like we could build a Louvre as your house, carved out a stone and it's like the same price as your house.

And we could recreate all of this wonderful architecture that Europe had built, that you can't build an America today, but with robots.

“So I think there's going to be that kind of productivity when robots gain a lot of capabilities.”

I just want to double click on that because one of our, you know, every year we try and it's dangerous. Big tech companies that I'll perform and the one that I'm most interested in this year is Amazon for the reason you just highlighted that is the art thesis is that where AI actually does created the shareholder value creation lives up to the hype is in one autonomous specifically waymo, but two industrialized robots and Amazon has a million industrialized robots and the rest of the nation has 400,000 combined.

You think Amazon will benefit from that great sort of robotics age that you're envisioning. 100% Scott, I mean Amazon, you probably know the company way more than me, but they're a logistics company, right? They are warehouses everywhere that they have merchants. Why won't Amazon be part of like future home construction? Because you know, just like Sears Robot, they could probably deliver homes and then their robots could be the, the carpenters and agents putting it all together.

All of a sudden their tam is, you know, doubled because it's the entire residential and office market. You know, I mean, I think as a logistics company, that means anything that requires logistics is really their addressable market. So yeah, I think, yeah, I think that makes a lot of sense.

Just going to some of your predictions for the second half of this year.

So at the beginning of the year, you set a price target when you came on the show at the beginning of the year, the price target for the S&P was 7700. We are tracking to hit that, but you changed that in your halftime report, half year report.

If you could just lay out why you think that's all going to happen.

Yeah, we did raise our target to 8,000, which is basically $400 in 2027 earnings.

And then we traded 20 times that multiple that would be 8,000.

“But June to December, I think a lot of tests the market has to pass are going to be coming.”

The first most obvious is we have a new Fed chair. And Kevin Marsh has some ambitious goals. He wants to re-configure how the Fed functions, many as five task forces. One of those is redefining inflation.

The second is analyzing communications, the third is how they collect data and there's others.

For me, that is all new challenges for the market to understand. Because they are very used to accatence a conference, press conferences, prior to Powell, though, you know, press conference, FOMC rate decision was not the norm. And it sounds like Kevin Marsh might only do it when he has something to say. He also doesn't want to provide for guidance any longer. So markets have to find a proxy for forward guidance, you know, it may end up being prediction markets. And then he may want to redefine inflation.

But that's going to be tough when he himself wants to keep inflation it, you know, to get to 2% first, but then 2% inflation on what measurement. You know, the second challenge is going to be the unlocking of all the IPO liquidity. So for SpaceX, that's at least starts in the fall. The third is this war with Iran is creating a cumulative and growing deficit with petroleum products, because the straightaway moves is in back to normal. And even though gasoline is plentiful in America, it doesn't mean like lubricants and other petroleum products are plentiful everywhere else.

“And I mean, it's the, I mean, being literal, but like it's oil that Greece is the machine, right? Like, you know, is there going to be problems somewhere?”

Like, I don't know, that's, I think it's highly uncertain. And the fourth is, is the margin debt is usually showed associated with some sort of correction in the next six months. I think between now and midterms, there might be a fifth risk that emerges, you know, or the fragility that we talked about that helps drive that drawdown. And, you know, as you know, corrections once they start, they can be very, very ugly. So I don't really know. And I wouldn't want to call it top either. So, you know, we've been advising our clients to stay invested and we're still constructed, because I think there's enough skepticism now.

But even from that, whatever level we peek at, I think it's a, it's a big drawdown. Why do you believe that it'll come ripping back so quickly? Because all of the, all of the tests that you highlighted, that's what I, my mind's on.

And it, it almost seems inevitable, but of course, that's never the way to think about markets or investing.

But those just seem really important. Why do you think we'll see such a quick comeback from that correction if we see it? Whenever there has been a severe correction in the U.S. market, you know, our stance has been that these would be v-shaped recoveries, you know. And it's always been met with a lot of skepticism. Even earlier this year, you know, we had said that this, the war, the pullback associated with the war would be a v-shaped recovery. You did say that. Yeah. Yeah. And many, don't believe it, because they would point to oil and all these uncertainties, but I think whatever it is, markets front load on negative shocks.

“So that's why I think we, we could have a very severe correction.”

But unless the economy is breaking, so we actually have a negative cycle. I think that in the yield curve will tell us and spreads will tell us corporate credit spreads, but as long as the economy isn't breaking, whatever correction we have will be v-shaped. And I know I'm saying something that sounds mechanical, but, and of course, you know, it'll be put to the test, but that would still be my default belief. And it seems as though the market has been getting more and more v-shaped when we look at just how short these recoveries have been.

The war was a perfect example. And you did say at the beginning of the year, you thought that we would see a bear market like correction and then a whip saw back. That is what we saw, but it just came in the form of a strange thing, which was going over the run.

I'm also with you on that, but why are you long mag seven and IGV?

“I believe they're both downstream beneficiaries of AI. In the same way that Scott mentioned that Amazon's a huge beneficiary of AI, and I think the financial services industry is a huge beneficiary of AI.”

So I think today people, investors, are buying bottlenecks because that there's visible growth there. But every month that's passes, there's a compounding benefit taking place to people who are downstream of AI. Because that's companies and software, and these software companies, they're not monolithic, they have boards and CEOs, and they have sales, people, and engineers, and they're all witnessing what we're witnessing. And there's many ways that they can benefit from AI. So to us, it's the derating that's taking place in all those stocks that tells us the risk of water is really attractive.

We'll be right back, and for even more markets content, sign up for our newsletter at profgmarkits.com. It's Donald Trump's still cool.

Well at first, there's where he was promising to America.

He was promising change. Yeah, that's a big change. Has he lived up to that? No, no, I want to say so. I also have this appointed. We're in Washington, D.C. for one of the events that Donald Trump is throwing for America's 250th anniversary, and it's UFC night.

Probably be American, we've got free tickets. It's just going to be a great time. That's about it.

It's an opportunity to talk to a group that was central in the 2024 election, young men.

“Why do we think Trump and men seem to have a connection?”

I don't like yours, it's just not how to advertise himself. It aligns with masculinity, I feel like. So it's certain extent. But if they don't like Donald Trump, what do they prefer politically otherwise? I just care about my family, I care about my country, I want people to be safe and happy where they live. I care about my wallet zoom out. I'm a steadhernton, and this is America, actually. Catch us every Saturday on YouTube or wherever you get your podcasts.

We're back with refugee markets. So Tom Crypto is well-off its eyes. It bitcoins down as been cut in half. Ethereum's lost about two thirds of its value. You're firm bit mine.

“Digital asset treasury yesterday bought over 40 million of Ethereum. Why are you bullish?”

The reason we were bullish on crypto at the start of the year, and really for the last ten years, is that crypto currencies and blockchains do solve an important problem, which is how do you do trust a transactions between two untrusted parties? And that type of settlement and finality has been proven because Bitcoin and Ethereum

in their entire history has never recorded a fraudulent entry.

And that is why Wall Street is building tokenized assets and building stable coin rails. And I think over time, I think using blockchain actually as a replacement for a lot of the legacy financial rails. For instance, there's a Goldman Sachs conference in Europe in London today, and the number of attendees is almost tripled from a year ago.

Similarly, I'm bullish on crypto because I think as agents and AI become a lot wealthier, and we're starting to see, you know, agents create wealth for us, and robots create wealth for us. To us, the opportunity is that we may be reaching a point where agents actually own more wealth than we do. And I'm going to call that the, quote, uncanny value of wealth, that there may be a point in time where if our delegated agents make more money than us, we're going to wonder if we work for them or they work for us.

And I think that is the reason why crypto and a lot of the technologies are starting to realize that crypto is really one of the ways for humans to control the future of agents. So I think those two mega trends are still in place, but crypto prices have been absolutely terrible this year. I think part of it is a macro, you know, the monetary policy is not selfish.

Mark, it was looking for two cuts now, it's two hikes.

That's a headwind. The clarity act, which was supposed to help provide and create federal preemption of cryptocurrency rules and let the CFTC essentially have per view over that industry. And that's still stuck in the Congress processes. And AI, of course, has done so well that it's not only taken away attention, but it's actually taken away

investor capital.

“So I think those are, to me, headwinds, but they're not creating what I call intermodal replacements.”

I think blockchain is still going to be central to the future of the financial services in street and actually to how we manage AI.

Two companies that have our huge companies extremely profitable, got absolutely murdered

so far this year. I think that is a fair characterization. Microsoft down 24% price to earnings of 22 and meta down 15% price to earnings of 20. What do you think of those companies? I'm very confident both are going to play the future waste smarter than the market believes

at the moment. They both have a long history of proving that they understand major existential pivots that are needed. And so, you know, today it's kind of easy to say, "Oh, well, you know, meta's got an issue because they're spending so much on hyperscaling and they're no longer free cash.

But, you know, that is an incredibly talented organization. And, you know, Mark Zuckerberg has proven to make very, very smart pivots. So, I'd have a lot of confidence that they are going to navigate this very well. Even though, you know, their financials look like they're in potential transition. And similarly, Microsoft.

“I mean, Microsoft, even, I mean, just to sort of demonstrate their, I think their foresight,”

you know, they are, they've made some very smart investments in AI and look at how they've become so big and cloud. So, to me, I think that they have a dash or that they, they do have a pretty decent crystal ball. And so, I'd be confident that both companies navigate this really well in the next couple of years. I'm with you on that. Looking at the stock sort of crushed this year, it's basically like semis.

And this is an interesting data from Torsten Slark and Apollo, which is the semiconductor stocks now account for 19 percent of the S&P. So, there's literally a fifth of the entire market.

It was below 10 percent in 2025.

I just think here's how you think this semiconductor story is going to play out. Because that, that's really what's driving the market. We could even look at like the small caps, the Russell 2000 again. A lot of that growth is coming from these sort of like more niche AI plays. It's not coming from the more sort of value stocks that you might think about when you think of small caps.

It's really like it's, the whole market is semis at this point. How do you think that's going to play out? Do you think there's room to run there? And why has it been such a sort of violence swing to the upside so far? You know, semis historically been a very cyclical group.

And you traded them on book to bill ratio. But over the last couple of cycles, that's become less the story. And the very question you're asking is, is this a long cycle, or has something changed? Yes, exactly. The moment, like for 2026, and maybe even 2027, neither will actually matter because in the near term of the disability is very good.

I might guess that semi conductors are in a new cycle, a new story. Only because like if we look at the last 50 years, every semi cycle didn't really have a change in the, in the tan. You know, it was the same set of buyers. And then there might have been capital raised and you had the bull with effect affecting the semi, everything from semi cap equipment to the semis. But this time we're looking at, you know, robots, which are very semi conductor intensive versus an iPhone.

“You know, like the amount of semi conductor that you need to put into a robot is what, I mean, I don't know the number.”

I'm going to guess, is it 50 times versus what you need in an iPhone. So all of a sudden every new autonomous robot that you deploy, which is going to save your money as a labor tool, is very semi intensive. And then of course, there's going to need to be, if there's semi conductors in space, you know, I mean, what conditions do they have to survive and they're going to be quite unique.

Yeah, it does seem like that's exactly as you put it.

Is this a big cycle or has something changed?

“Yeah, I, I think it's, I think both are pretty reasonable outcomes and it's, it's really tough one.”

Just as we started to wrap up here, some of the stuff that you mentioned, in terms of risks, you had your, your big tests this year, the Fed gets tested, the unlock all of the IPOs and SpaceX, especially the petroleum product shortages.

One other new risk that's kind of been on our radar is this issue of how expensive AI is not necessarily just for the, the foundation models.

But for enterprises themselves and a lot of these companies are now shifting to these cheaper open weight open source Chinese AI models, because they can't afford, Claude and they can't afford open AI's products, etc. That seems like it could be a real issue for American companies if suddenly everyone just starts deciding to switch over to Chinese models.

“Do you view that as a risk on how do you think about that shift?”

The high cost of AI and the apparent, you know, abundance of capital is creating competition. And, you know, competition is intermodal because, you know, there may be people who create open-sourced models that also don't even charge anything, but they try to monetize it somewhere else. And I think that that's the trade-off every future user has because, of course, no model from China is going to be free. I mean, it might have great capabilities, but the risk is, you know, what is the quote, rent-seeking business model of that other model?

“And if it is deployment and they just want China AI to spread, then I think things are fine, but if there's a surveillance element or, you know, a capture, then that poses, of course, a lot of risk to businesses.”

Because as you know, that was really an early mistake for a lot of users of these AI models was sharing too much data. So I think it's, you know, I think it is a risk that's worth watching because, you know, it's creating enormous incentives to find intermodal replacements, you know, for expensive models. The emerging markets up 25% year-to-day more than double the S&P's gain, and that's after increasing 34% last year. One of our big things was we saw a rotation out of, or flows reversing for the first time in the better part of two decades back to emerging markets, hear thoughts on the U.S. versus emerging markets.

I can believe the emerging markets out performance thesis. I actually only focus on the U.S. but to me, AI is a whole new infrastructure build. And there's going to be infrastructure partners to this process. Korea has proven to be one. So to me, for every advancement in the AI story, it's Korea has a beta to that. And it's not just going to be Korea's Taiwan, and I'm sure a lot of emerging markets. So to me, structurally, it makes sense that some country should outperform because they might have higher beta to this structural story.

And therefore their economies will outperform and therefore stocks. Tom, we always love having you.

We appreciate getting your more bullish perspective, although with the caveat that you do believe that we'll see a correction in the second half of the year, but that it'll be v-shipped and we'll come right back. This is more on the crypto side of things. Obviously, crypto has gotten pummeled this year, Bitcoin and Ethereum. But you, I know that you're bullish specifically on Ethereum, and you're bullish on the stock market too. I'd be curious to know, what would change your mind to, to basically say, actually know the price is going down.

I mean, what, what would it take if we saw continued paying in the crypto markets as an example, if we get to say June of next year, and Bitcoin is hovering around, I don't know, 40 or 50, I mean, it was all hypotheticals. I'm not even sure how much value it has. But would that change your mind on things or what, what would? You know, crypto is a hyper volatile. So, Bitcoin's fall from, you know, 120,000 to 58,000, and Ethereum, which is, you know, beta to Bitcoin falling from 5,000 to 1600, that's fall still within the historical parameters of like the crypto bull and bear market cycles.

And I think part of it is some of the macro things and, you know, that Scott and I discussed like Fed becoming a little more hawkish and AI really taking away some capital and the clarity act and that the positive exemption that would come with it not happening just yet. But none of those really break the crypto story because as I'm, you know, as a quote, mouse trap blockchain is still the best way to still transmit and store value and record transactions without trust.

“And that's why I think Wall Street is still going to build and is rapidly building on block chains. You know, it's just not happening to our everyday lives just yet.”

And for the same reason why I think a lot of the AI engineers are tinkering with using blockchain to manage future agents to protect us because as AI becomes quite wealthy, you know, humans might be taken out of that economic loop, you know. So I think that's why to me Bitcoin will make a full recovery, you know, I, I believe you're going to see Bitcoin over a hundred thousand by the end of the year and Ethereum, you know, back to over five thousand. So I, you know, I think investors patience is clearly tested because we've, I think Bitcoin's been down three quarters in a row.

But I think it's never been down four quarters in a row. So this would be a test that if they don't balance from June to September, then you write maybe something's broken.

Is there a price point at which you would say, yes, it is broken. The story is broken and it won't work anymore like, do you have a think about think about that? The way to look at it is its production cost because there is a cost of mining and to find the next block.

“And I think Bitcoin is like 5% below production cost right now.”

If Bitcoin falls below 50% of production cost, it literally says it means you just take down the network, you can't support managing the Bitcoin network with its current price.

I mean, that to me, you know, that that would be the equivalent of like JP Morgan trading at half a book value. Yeah, so okay, that's that's health context. Final question. When you think about your investment philosophy, you're kind of bullish by nature, like you think about what could happen in the future, how things could change in the right ways.

“What robots could do, what agents could do, and it's a great, I think it's a great way to think about investing.”

My final question, like, how do you stay so bullish? What is your investment philosophy that drives your views at this point?

One of the things that I learned from my earliest days on Wall Street, because this is my 30th year, as a reaction. As a research analyst, is that I think that there is something unique about US innovation. You know, I think that the US structure of creating incentives for innovation, and I think somewhat positive regulatory backdrop and the ability for companies to innovate and constantly innovate and I think companies continue to innovate is the reason I've been optimistic. I think COVID was a really good example of that, you know, the whole world shut down, and around the world, many companies suddenly saw collapse in earnings.

But in the US, through a variety of measures, including government spending, S&P earnings actually grew, but it was a lot of good companies making good decisions too. I think as long as that vitality and dynamism exists in America, then I think I can stay constructive, but you're right, a business cycle end, and of course innovation could end. You know, if America becomes has what we call Dutch disease and no longer seeks to innovate, then another country will take the lead. We as the co-founder and managing partner and head of research at fund strike global advisors, a leading independent research firm, he has more than 25 years of experience in equity research and has been top ranked by institutional investor every year since 1998.

Prior to co-founding fund strike, he served as JP Morgan's chief equity strategist from 2007 to 2014 Tom, this was awesome, we really appreciate your time. Thank you.

You have it in time for you, yeah. As the world turns. [Music]