Bullish Case for Crypto Assets

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Forgiveness 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 twenty twenty six, fast forward to today And the US stock market has indeed performed very well up nearly nine percent 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 find out, is he still bullish? What are investors underestimating And where are markets headed for the second half So to find out all of this, we are speaking with Tom Lee, co founder, managing partner and head of research at Funstrat Global Advisors Tom. Great to have you on the show We wanted to get your H one review and then your kind of outlook for H two just to sort of set the stage here We've got Y S and P up nearly nine percent in the first half the Dow up eight percent, the NasdAQ up eleven percent. There are certainly some Winners and losers Among them, you know, you look at the MAG seven Big tech, which has been kind of punished so far this year alsoso 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 twenty six 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 twenty twenty three, two twenty four, two then twenty five. U the fourth year actually tends to be pretty solid. That was one reason constructive And At the start of this year, the thought was that the earnings could be the driver of the markets. And that's been the case because at the start of this year twenty twenty seven S andP earnings Consensus, and very similar to ours was three hundred and fifty dollars And now it's currently four hundred. So it's risen by fifty dollars And the PE on twenty twenty seven earnings was at nineteen point four at the start of the year It's now eighteen point four. So the stock market which might surprise people has actually gotten cheaper now than it was in January even though we're nine percent higher. I think it makes a lot of sense to be Instructive here. because I do think there's room for earnings to further revise higher for the US the drivers of earnings have remain in place, you know Part of it is this AI and energy infrastructure build that's taking place part of it is this trend towards onsharing 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 bulloyant, but there are two sort of other factors to weigh in now that we're mature One is that Margin debt is much, much higher now than it was at the start of the year. In fact, It's risen fifty five percent year year That is, I think the fifth highest ear rear increase. ever and almost u seventy years And historically, that's associated with 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 seventy six percent of fund managers are trailing their benchmark this year, which is a pretty historic Number on large cap blend, sixty percent, which is not as historic. So today I would say growth managers probablyb missed a lot of that Semi and Dirim Rally I think they're going to be chasing it in the second half, which is why I would probably stay bullish I'm anxious about this market in a lot of ways, because I look at you know the Siller PE as an example, which is extremely high right now, basically coming up on halm 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 we're seeing they hinge on these contracts with these AI companies whose ability to actually pay out on those contracts I thinkk you. It's not unreasonable to say that they should be at least questioned open AI and their spending plans, anthropic and their spending plans, space, et cetera U And so and at the same time, We've also been looking at some of this research that was coming out recently that Goldman actually confirmed, which is that a lot of the earnings that we're 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 being I look at the earnings growth. The earnings growth is really strong. I feel a little bit ambivalent about it, especially when they say earnings over the next twelve months are going to be X,YZ. I'd just be interested to hear your views on my I guess, skepticism I'm going 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 eararnings 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 fab production or there's a long lead time So they they can take price instead. So now you're going to get more flow through to the bottom line, but that creates the bullwip effect because we know ultimately the supply chain catches up And then there was concentrated spenders because we know hypcalers are writing big checks. And 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' 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. now where tapping into another part of the capital structure to fund that. So I think those are all reasons to be sort of raaising the bar on how much multiple you apply to the earnings growth being said I think a lot of the activity is mainly taking place in four countries. Um, And so we have to really think about what that means. You know, the four countries, of course, are the United States and China. And then it's I kind of say Korea slash Taiwan. So the AI infrastructure partners And then possibly like Japan. So u 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 Siller PE for example I mean, the real question for us right now is is it frothy? And it almost seems like there's not a lot of agreement. this on this point right now, which is interesting U that we're all kind of looking at different metrics and we're all trying to determine, is it really bubbleellicious? Is it really frothy or is it not Um 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 at u When I was at JP Morgan then we continued to maintain at Fstt. as, you know, you can run a Siller PE bis seector And that way it kind of more is apples to apples. Like for instance, if you did text, Schiller P E then you can sort of judge it nineteen twenty nine versus now Of course, what is a technology company back then is very different because you know that was a radio. makers and microwave ovens at some point byy that measurement U the Siller PE is not nearly as extended just because the composition of earnings now today is increasingly coming from tech. So tech is U Kolly I'm sorry I don't have the exact numbers, but I think it's going to be sixtycent or seventy percent of all earnings growth, but it's probably close to forty percent of the level of earnings. And u In ninety nine that wasn't true. You know, tech wasn't a big earnings contributor in ' ninety nine But it was it was a big multiple contributor. So I think that Oositionally and the ISM is the same showing you the same thing. If you do the split between manufacturing services We've flipped just in the last fifty years from manufacturing being the majority of activity to On thirty percent So I think we have room for the Siller PE to be higher. But 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 tenure' been going up and I've been surprised at how tight high yield spreads have remained and investment grade think that with geopolitical risk and the high level of rates that is creating a cost of capital burden that spread should widen, but they haven't. You know, it could, I mean, to me, I'd be watching credit before I watched equities crack, but I think credit is probably telling us there's actually still too much liquidity out there. It feels like there' 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 that 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 pay you What are your thoughts on that? And what do you see as the second order effects of some of these bigger IPOs coming down the pipeline I think there are like s of three cohorts being affected by IPOs. You know, one is the issuer Uh, the second is the holders of the private companies of these IPOs U And the third is, you know, sort of the broader market. And SpaceX, you know, is a good example.. Their IPA was only seventy five billion of a one point five trillion dollar company for over one and a half trillionars. So today the float's only ninety billion. SpaceX as a stock is trading less market cap than most of the NASDQ. one hundred, you know, it's probably gnastic topop fifty in terms of total market cap And that's why it's trading well Um, 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 the end of this year But before that happens There's massive wealth created because sppaceX Only raised billion in its entire history And it turned into one point five trillion So the holders of SpaceX when it was private have enormous wealth created That actually is going to be true economic stimulation because every bank will lend the money against their holdings. And so I think it actually boosts GDP. So you're right, Scott, there's coutervailing forces. take is that The broad economy is going to benefit from all these IPOs because it's massive wealth in loock. 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. 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 stick on this notion of CapEs and our second order effects of specifically of these AI companies who have made these extraordinary commitments around CapEx, which I believe has elevated a lot of these stocks And I'll put for to sees this. It looks like open AI. might be shelving its IPO. I gott 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 are starting to see some cracks in the I don't w want to call the AI bubble, but in the AI story and that would ripple through the markets or are you less worried? Well, there's a lot of things that can go wrong with the AI story, Scott Pette because one As you know that we have to build parallel amount of power and infrastructure to support all this. gettingting all that built is an enormous lift. I mean We won't even really know what it means for residential electricity prices, right? or like ennvironmental damage, you know, or like quality of life if you live around a hyperscaler data center And I think that we don't exactly know why both anthropic and open eye 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 because, uh, You know, like Mythos faced a lot of like you know scrutiny and then Fable had to get pulled You know, is it possible the U.S government is actually saying like, we got to like look at all your models now D And then they got to like thrle their plans. Mbe, I don't know. I mean To me, it's curious, I actually think SpaceX is a huge success. So I don't think SpaceX has reason anything to do with open AI anthropics long 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 Doodam, the CEO and co founder of Hms and Hers The episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a fifty page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responssees set upp required compatibility and availability varies eighteen plus Your summer weekends fill up fast, but Crocs has your back. Road trips, beach days, last minute getaways, whatever's on the agenda, swing by your local store and find your new goat too. Try it, style it, make it yours. Because the right pair doesn't just show up, it shows off Walock out ready for whatever's next. Visit your nearest Cux store today We're back with Profty Markets I mean, just to push on this idea of like why Why is open eye not going public? Why are they worried What are they anxious about I'd like to get your views on this I mean, it seems as though from a financial perspective, open AI is a little bit of in a little bit of a shitty spot I mean, just to put it plainly from their from the profitability side. I mean, just the fact that last year they lost They' almost forty billion dollars. If you look at like the operating profitability, they lost around twenty one 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 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 the eye I mean, we saw that their financials were leaked recently. The reaction was a little bit Great Um just on an anecdotal basis. I thought the financials were surprisingly bad from a profitability perspective And I wonder if they're just like invvestors can't handle this And we need to figure our business out before we go out And'd just I'd 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 there's so much riding on these companies and yet they haven't figured out their business models Okay, well, I'm just gonna speak my opinion because I don't really have the full facts I think if opening Eye was to go public oranthropic 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 ananthropic art clelearly at the forefront of like creating complex reasoning models that are eventually going to become our agents for us. The public has no access to it. Institutional investors don't really have access I 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 they' It's probably one reason that they U Pausing I mean, to again, I'd say it's curious to me, but I I think investors when they look at open and anthropic A't u We're looking at this as a subscription business You know, they need to see free cash flow I think they need to see a company willing to spend and recruit a to maintain leadership, which 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? I do think that the business model question is still a giant unanswered question I'd be curious to hear how you view it. Pus and I This is It's still a story that is being written in the future tense. like we're only chapter one. At best we can make guesses analogies. I mean, for instance, notot to fork the conversation, but to me, sppaceX is the the most significant achievement they did is they turned satellite spectrum. 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 Elon was able to get all the clothes spectrum for like nothing. Whereas in the USK, it's like to get, you know, twenty megahertz wide of cellular, you're paying two hundred dollars per person. I mean That's so he took satellite spectrum for nothing, and now it's the most valuable spectrum in the world Meta a free business with user generated content, which was originally just sort of like a yearbook for people Uh 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 to How could Facebook be even better on a mobile because you know, there was so much richness on the desktop version That that was the key to them. take stealing the advertising business Op a anthropic because of their creation of basically complex reasoning models H Who knows what kind of industry they're going to subsume? Like we think maybe it's just advertising, mayaybe we're oversimplifying what their actual business model is. L are they going to be A creating biotech labs, you know of the future? or are they going 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, meta and what they achieved or even Google, which took search, right? They really took search to a much different level and SpaceX taking satellite spectrum I think that that's why There's a not zero chance that these could be massive home rununs as IPO still one hundred percent agree with you. and 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 they don't make that home run that it somethinghing goes wrong, Sam Altman makes the wrong move and they crash and burn in some way Part of my view is I feel like that's also a non zero probability to be priced in not just in terms of the price of open AI, but also in the price of the markets at large, which have become So dependent in a lot of ways in opening eye succeeding and also opening ey spending lots and lots of money and paying for all of this compute and all of these chips Well it was an interesting irony because u the more successful opening I becomes Two things are apparent the more important Sam Altman is because it is reallyally him having to as a human make decisions. You know? likeike I'm sure he's not typing into chat GBT like, what should I be at right?? But the self actualization of like his strategy requires highly highly skilled humans You know So like it's very much a people's story to make both amazing companies and You're right. So you you you're betting on Samon and his vision and you're betting on Anthropics team and their vision and you know, it 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 Um, 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 andP, which has risen nearly nine percent this year, most of that growth is coming from a handful of companies, not the big tech companies, but the semis and the drAam 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 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 Um But it hasn't happened yet and the story continues to roll on I just I assume that's on your radar I think one thing though we should keep in mind is that It is we're sort of maybe speaking in a narrative sense because u You know, even as important as open AI is and anthropic, if they were to, let's say stumble here, I think S andP earnings wouldn't fall that much short of the four hundred, you know U But we also have to keep in mind that O There's actually one person that in every point in history since the nineteen forties is like the most important person's hand on the market, which is the Fed. Like the Federal Reserve chairman is a single person. like that's big keyman risk. And you know, it's been amazing because you know, we've never really had a Fed chairman Um dden incapacitated from their job. you know? I mean, I think that's a miracle of capitalism because like You know, Kevin Warsh today is actually arguably one of the most important people in the world now I'd agree with you. There's there's fragility. I mean, the market is, you know S and P H It's seven thousand three hundred We know I just remembered in two thousand nine, the market bottomed at in the six hundreds. So you know what I mean, it's definitely come a long way. but fortunately, the multiple is lower today than it was in two thousand nine But you're right, it's 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.'s It's creating path dependency on you know, a handful of people Yeah, it's almost like the question becomes What do you want to do about that fragility? Do you decide because it's fragile, oh, I'm out. Or do you recognize at the same time, yeah, there is home runun opportunity, as you mentioned And do I want to miss out on that It's kind of the big question. I'll pass 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 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 very hard of measure m explicitly because, um I think that AI has proven is, um of things, you know, one, and I'm being anecdotal, but one is of course it makes people a lot more People who are highly capable, very productive because I've seen that Fun stret capital and Fun stight where we pl playing essentially army of researchers, but it's really just our clauded agents and u But it's also revealing the nature of work because um Most people say, hey, this is a forty hour a week job And economic When we measuure it economically, we say, oh, you work thirty six hours or you know, we have like because they punched a clock or you know, a forty hour week, but we know that most people in that forty hours probably only work X percent the time. you know, what is the actual time people are productive? Is it Six out of the forty hours a week, you know, if it's possible and most of the 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 Um And so I guess that's productivity I believe a lot of white collar jobs and even health carere 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 forty hours But now a lot more is being accomplished Um 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 Gillild A lot of 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 artisan robots like we could build a Louvre as your house carved out of stone and it's like the same price It your house and we could recreate All of this wonderful architecture that Europe had built, that you can't buildilt in America today, with robots. So I think there's going to be that kind of productivity. when robots gain lot of capabilities. I just want to double click on that because our one of our you know, every year we try and And it's dangerous, pick one of the big tech companies that outperform and the one that I'm most interested in this year is Amazon for The reason you just highlighted and that is The our thesis is that where AI actually does create a 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 four hundred thousand combined. Do you think Amazon will benefit from that great sort of robotics age that you're envisioning one hundred percent, Scott. I mean Amazon, u You probably know the company way more than me, but they're a logistics company, right? They are Warehouses everywhere that they have merchants H Why won't Amazon be part of like future home construction because, you know, just like Sears Robuuck, they could probably deliver homes and then Their robots could be the carpenters and agents pututting it all together. all of a sudden their Tam is, you know doubble 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 projections 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 the year, the price target for the SMP was seven thousand seven hundred. U we are tracking to hit that. you change that in your half time report, half year report You now see the S andP hitting eight thousand by the end of the year But with this caveat, which I find interesting that you think that the S and B in the fall that the markets' are going to hit something that resembles a bear market and then come ripping back up. If you could just lay out Why you think that's all going to happen? Yeah, we did raise our target to eight thousand, which is Basically four hundred dollars in twenty twenty seven earnings And then we trade at twenty times that multiple, that would be eight thousand U June to December, I think a lot of tests the market has to pass. going to be coming. The first most obvious is we have a new Fed chair And Kevin Warsh has some ambitious goals. you know, he wants to re Essentially reconfigure how the Fed functions, many he has five task forces. One of those is redefining inflation You know, the second is analyzing communications Third is, you know, how they collect data. and there's others. but to me that is all new challenges for the market to understand because they are very used to cadence at conference, press conferences. u prior to Howell though press conference after FOMC rate decision was not the norm. And it sounds like Kevin Warsh might only do it when he has something to say. He also doesn't want to provide forward 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 one He himself wants to keep inflation at you know to get to two percent first, but then two percent inflation on what measurement. You know, the second challenge is going to be the unlocking of all the IPO. liquidity. So for SpaceX, that really starts in the fall The third is This war with Iran is creating a cumulative and growing deficit with petroleum products becausecause the strait of hormones isn't 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, I'm being literal, but like Oil that greases 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 associated with some sort of correction in the next six months. So I think between now and midterms U, There might be a fifth risk that emerges, you know, or the fragility that we talked about that helps drive that drawdown. And uh, You know, as you know, corrections once they once they start, they can be very, very ugly. So I don't really know. And I wouldn't want to call a top either. So you know we've been advising our clients to stay invested and we're still constructive because I think there's enough skepticism now But even from that whatever level we pek 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 tests that you highlighted That's what my mind's on U and it almost seems inevitable But of course that's never the way to think about markets or investing, but those tests seem really important. Why do you think we'll see such a quick come back from that correction if we see it. Whenever there has been a severe correction in the US. market Um You know, our 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 pullback associated with the war would be a V shaped recovery. You did say that. Yeahah. Yeah. And many don't believe it because they would point to oil and all these uncertainties, but I think what I've realized is markets frontlad negative shocks So that's why I think we we could have a very severe correction unless the economy breaking. So we actually have a negative cycle. I think that And 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 Um 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 bear market like correction and then a whipsaw back That is what we saw But it came in the form of a strange thing, which was going to war with Iran. L at your favorite sectors right now for the year, you have energy, small caps, financials, industrials, agreed on all of those. And then also technology And you point out the Mag seven and the IGV i. e software stocks stocks that got tummeled by the SAS apocalypse and then SAS apocalypse two Um I'm also with you on that, but why are you long Mag seven in 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 You know, 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 you know, these software companies They're not monolithic They have boards and CEOs and they have sales people and 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 takaking place and all those stocks that tells us the risk awward is really attractive. We'll be right back And for even more markets content sign up for our newsletter at proftymarkets. com. Rroches are getting comfortable in your home, it's time for STEM's multiintsect spray. Made with botanical extracts, it's safe to use around people and pets when use as directed killing ants, roaches, and flies without the fuss. And with no added dyes, fragrance or harsh chemical odors, you can spray it inside and outside your home Live life never bugged, but stem Visit stTemforbugs. com to learn more. We're back with profty markets. So Tom Crypto is well off the ties. Bitcoins down has been cut in half. Ethereum's lost about two thirds of its value. You're f Bitmine A digital asset treasury yesterday bought over forty million of Ethereum. Why are you bullish The reason we Bllish on crypto the start this year and really for the last ten years is that Cryptourrencies and blockchains do solve an important problem which is how do you Do trusted transactions between two untrusted parties And that type of settlement and finality has been proven because, you know, Bitcoin and Ethereum, in their entire history has never recorded a fraudulent entry Um And that is why like Wall Street is building tokenized assets and building stable coin rails. And I think over time I think using blockchain actually as re placement for a lot of the legacy financial rails. For instance, there's a Goldman Sachs conference in Europe Um, in London Today and the number of attendees is actually almost tripled from a year ago. similarly bullish on crypto because I think as agents and AI become a lot wealthier And we're starting to see Agents create wealth for us and robots create wealth for us us the opportunity is that we may be reaching a point where agents actually Own more wealth than we do You know, and I'm going to call that the quote uncanny valley of wealth. that there may be a point in time where if our Dlegated 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 technologists are starting to realize that crypto is really one of the ways for humans to control the future ro of agents So I think those two megat 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 dovish. It looked dovish six months ago. rightight Market was looking for two cuts now it's two hikes U That's a headwind Clarity Act, which was supposed to help provide and create federal preemption of cryptocurrency rules and let the CFTC essentially have perview over that industry, you know, that's still stuck in Congress processes And AI, of course, has done so well that I think 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 industrery and actually to how we manage AI two companies that have A Huge companies, extremely profitable. Um absolutely murdered so far this year. I think that is a fair chararacterization, Microsoft down twenty four percent tries to earnings of twenty two and matter downown fifteen percent Pice to earnings of twenty What do you think of those companies I'm very confident both are going to H play this Pay the future way smarter than the market believes at the moment They have They both have a long history of proving that they understand major existential pivots that are needed And so u 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, you know, they're no longer free cash jry. but M. 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 made some very smart investments in AI and look at how they've become so big in clouds. So to me, I think that they have a dashboard 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 stocks that have crushed. this year. It's basically like semis and this is an interesting data from Torsten Slock at Apollo, which is that semiconductor stocks now account for nineteen percent of the S andP. So' literally a fifth of the entire market It was below ten percent in twenty twenty five and I just be curious to hit How you think this semiconductor story is going to play out because that That's really what's driving the market. We we could even look at like the small caps the Russell two thousand, 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 cabs, it's really like it's the whole market is semis at this point How do you think that's gonna to play out? Do you think there's room to run there U And why has it been such such a violent swing to the upside so far You know, seem's u You know, historically been a very cyclical group and you know, and you you traded them on on book to bill ratio U, but over the last couple of cycles, you know, that's become less the story. And, you know, the the the very question you're asking is, you know, is this a long cycle Or has something changed, you know? Yes, Eactly. And for the moment, like for twenty twenty six and maybe even twenty twenty seven Uh, they neither Neither will actually matter because in the near term, the visibility is very good I might guess that semonductors are in a new cycle, a new story Only because like if we look at the last fifty years, every semic cycle didn't really have a change in the TAM. Um, you know, it was the same set of buyers Uh and then and there might have been capital raised and you had the bull whip effect affecting the the semi everything from semi cav equipment to the semiis But this time We're looking at u you know, robots, which are very semiconductor intensive versus an iPhone, you know, like then Mountic semiconductor that you need to put into a robot is I mean, I don't know the number. I'm going to guess is it fifty 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 you money as a labor tool is very semi intensive And And then of course, there's going to need to be if there's semiconductors in spaceational, I mean, what conditions do they have to survive? they're going to be quite unique. And so I think there's a chance that it is it's a new story St for Smmies Yeah, it does seem like that's Exactly as you put it, is this a big cycle or has something changed I think it's I think both are pretty reasonable outcomes and it's a really tough one Um just As we start to wrap up here, some of the stuff that you mentioned in terms of risks. you had your big tests this year where the Fed gets tested, the unlock all of the IPOs like 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 and they can't aff open AIs products, etcetera. 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? And how do you think about that shift The high cost of AI and parent 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 Um 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 The risk is you know, what is the quote rent seeking business model of that other model? And if it is u employment and they just want China AI to to spread, then I think things are fine. But if there's a surveillance element or you know, a capture And that poses, of course, a lot of risk to businesses because as you know, that that was really an early mistake for a lot of users of of these AI models was sharing too much data. So I think it's u 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. Emerging markets up twenty five percent year to today, more than double the S andPs gain, and that's after increasing thirty four percent last year One of our big themes was we saw rotation out of or flows reversing for the first time in the better part of two decades back to emerging markets. your thoughts on the U.S versus emerging markets? I can believe the emerging market somem O performance thesis. I actually only focus on the U.S, but to me Um AI is a whole new infrastructure build U, and there's going to be infrastructure partners to this process th Korea has proven to be one. So to me, for every advancement in AI story, it's Korea has a beta to that And it's not just going to be Kura, It's Taiwan, and I'm sure a lot of emerging markets. So to me, structurally it makes sense that some countountries should outperform because they might have higher beta to this structural story Um And therefore there economies will outperform And therefore stocks Tom, we always love having you And 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'll be V shipped and we'll come right back This is more on the crypto side of things though. obbviously crypto has gotten Pommel this year, Bitcoin and Ethereum Um But you I know that you're bullish, specifically on Ethereum and your brother's on the stock market too I'd be curious to know What would change your mind to basically say actually no. the price is going down. I mean, what what would it take if we saw continued pain 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, forty or fifty. I mean, it' all hypothetical. so 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 hyper is hyper volatile. So Bitcoins fall from, you know, one hundred twenty thousand to fifty eight thousand and Ethereum which is beta to Bitcoin falling from five thousand to sixteen hundred That's fall still within the historical parameters of like crypto, bull and bear market cycles U so Price hasn't moved to a level That would say anything's broken U, But what has been broken is the fact that stocks have done well this year and crypto' done badly And u I think part of it is uh 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 positive exemption that would come with it not happening just yet. But none of those really break the crypto story Because as a, you know, as a quote mous 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 chains. you know, it's just not happening to our everyday lives just yet And and for the same reason why I think a lot of the AI engineers are tinkering with using blockchain to manage future agents 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 believe you're going to see Bitcoin over one hundred thousand do by the end of the year. and Ethereum, you know, back to over five thousand. So you know, I think investors patience is clearly tested becausecause we've I think Bitcoin's been down three quarters in a row Um But I think it's never been down four quarters in a row. So this would be a test that if they don't bounce from June to September Then you're right, 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 ever think about Think about that For Bitcoin, 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 five percent below production cost right now Bitcoin falls below fifty percent of production cost It literally said it means Just take down the network. can't support managing the Bitcoin network with its current price. I mean, that to me You know, that would be the equivalent of like JP Morgan trading at half a book value Yeah, so okay. that's he for 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 And it's and it's a great, I think it's a great way to think about investing Um, 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, uh fromom my earliest days on Wall Street because this is my Um Thty. thirty fifth year as a research analyst. is that I think that there is something unique about U. S. innovation. you know, I think that that the U. S structure of creating incentives for innovation and Uh, I think someomewhat positive regulatory U rop and the ability for companies to innovate and constantly innovate. And I think companies continue to innovate It's 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 a collapse in earnings But in the US Through a variety of measures, including government spending, S andP earnings actually grew. But it was a lot of good companies making good decisions too So 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 will 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 Tom Lee is the co founder, managing partner and head of research at Fundstrack Global Advisors, a leading independent research firm he has More than twenty five years of experience in equity research and has been top ranked by institutional investor every year since nineteen ninety eight. Prior to cofounding Fundstrack, he served as JP Morgan's chief equity strategist from two thousand seven. to twenty fourteen Tom, this was awesome. We really appreciate your time. Thanks, Tom. Thank you This episode was produced by Claire Miller and Allison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. ourur research team is Dan Salan, Isabella Kinsel, Kristin O'Donghue, and Mia Silverio. Jake McPherson is our social producer Drew Burrows is our technical director and Catherine Dylan is our executive producer. Thank you for listening to ProfG Markets from ProfG Media. If you liked what you heard, give us a follow and join us for a fresh take on markarkets. onn Monday Hey,'s Ran Renold here from MitMobile Now, I was looking for fun ways to tell you that Mint's offer of unlimited premium wireless for fifteen dollarars a month is back. So I thought it would be fun if we made fifteen dollars bills, but it turns out that's very illegal. 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