Stop Worrying About A "Bubble" Or You'll Miss The Bull Run Of Our Lives

0:00The last two years have been filled with prediction after prediction of the next financial crisis. The pessimists have been running crazy promise you that destructions are on the corner. Whether it was tariffs, potential inflation, or geopolitical conflicts, everyone kept promising that financial pain was coming. But recession odds just hit a brand new all-time low on prediction markets. Calci is now showing only a 17 % chance of an economic contraction. That's down substantially from the nearly 40 % odds back in March of this year. Now, this comes after the U.S. stock market executed one of the fastest market recoveries in history.

0:34The S &P is up 7.5 % over the last month, and it's up nearly 17 % since the market bottom at the end of March. Bull Theory writes that the NASDAQ, the S &P, Russell 2000, Dow Jones, Google, Intel, Micron, and SanDisk, they are all up every single week for six straight weeks. We almost never see that. But before everyone starts with all the bubble talk, The Wall Street Journal's Gunjin Benjeri, she shows that the S &P's P.E. ratio has actually fallen 4 % since the start of the year. So not only are stocks pacing to have an above average year for returns, but the underlying companies have been getting cheaper at the same exact time.

1:14Ritzolt Wells' Ben Carlson has a great chart that shows perhaps the craziest thing about the current market run is how much of it is being fueled by the fundamentals. Earnings are going higher, so stocks are too. Ben says, what a concept. Now, this highlights the significant productivity along with the revenue and profit growth that these companies have been experiencing. And this is all happening as the entire U.S. economy continues to accelerate. Mike Zaccardi shows the median year-over-year change in EBITDA from Q1 has been the best in the last four years. Companies are simply just making more money.

1:50Now, a big reason that EBITDA is growing so aggressively is that demand is drastically outstripping supply for a bunch of products and services. NVIDIA CEO Jensen Huang, he's considered the godfather of AI. He recently talked about the compute needs increasing 1000%, 10x over the last two years. Take a listen to why he says it's happening. The amount of computation necessary from generative AI two years ago to now agentic AI, it has gone up 1000 % because the AI now has to read a lot more, use tools, reason, generate a lot of tokens. Not only that, the amount of use has gone up orders of magnitude because now for the first time, AI is doing work.

2:36It's doing useful work. And the return on that investment for software companies, for agentic companies like ServiceNow is completely accretive. Now, it's great to hear Jensen talk about this, but he's pretty smart and I got a small brain. So I wanted to understand this idea better. And I asked Jordy Visser about it this weekend. Here's how Jordy explained the recent explosion in compute demand and why that then waterfalls through the economy in various companies. Take a listen. Inference really started to have an impact on things a year ago. And that was when almost every company started in their earnings talking about how inference demand was taking up.

3:15Now, inference was because we had launched the first reasoning models. So I want people just, again, to think about, let's go from chatting, where the models are just literally regurgitating answers back out, to where they're taking more of a thoughtful time period. Once you take longer to think out an answer, you're in the inference mode. So when you look at beginning of 4.5, you will see a parabola in token usage. You will see a parabola in the revenue, the annualized revenue run rate for Claude. I mean, now it's up to 44 billion. We're at pace to be at 100, another 10 times. So the parabolas are being formed by the reality by everyone that, oh my God, we need more.

4:04Now back in September is when DRAM prices started to go up. That was before Opus 4.5. That was purely from the inference needs and the memory that we needed now. Now we've moved into the next phase. So the reason I wrote a paper about Marvell is because we started realizing that, oh my gosh, we need optical fiber because this is a different sort of data center. This is different inference. We got a lot of stuff going on. It's not just memory. It's action, do this. Memory, action, do this. So that's why Corning, we talked about Corning back in November. Look where Corning stock is now. So these stocks have all gone through this parabola for a very, very valid reason, which is the earnings and the buildout necessary for the agent world.

4:46We didn't know how big it would be. We didn't know how fast the adoption would be. And this is a mistake that people have made continuously since 2013, which is they made it with the Mag7. They made it with NVIDIA and after, you know, ChachiBT. In the exponential world, things move at an exponential pace. and that is a parabola. So the IQ going up, the annualized run rate going up, adoption going up, there is a fundamental basis for this. And before everyone starts to go into this is the dot-com bubble, demand is ahead of supply right now. And that's the big story. That explanation from Jordy was great.

5:24And it reinforces what Jensen was saying, but it also reinforces what Citadel has said. Citadel continues to say that one of the most important parts of the recent market recovery is that the recovery has been heavily concentrated in only a few stocks. You can see this by the fact that only 22 % of stocks in the S &P 500 have actually outperformed the index itself over the last 30 days. That's the highest percentage of concentration in the last 30 years. We are watching something happen right now that has not happened in three decades. Now, there have really only been two ways to make money during this bull market.

5:58You've either been in the AI trade or you've been in the broad index. If you were in almost any other sector without index exposure, you're likely lagging the market and the high-flying AI-related companies. Now, you can clearly see the difference when comparing the S &P return over the last two years. It's up 42 % in two years. When you compare that to the S &P excluding the AI stocks, it's only up 16 % over the same time period. As investors, though, it is very dangerous to allocate capital looking in the rearview mirror. What drove market returns in the past does not necessarily tell us where future returns are going to come from.

6:33With that said, though, the amount of capital being invested by AI companies is nearly impossible to ignore. Every day, it's new headline after new headline, billions and billions of dollars. A16Z recently showed that technology companies are now 55 % of all U.S. capital spending as measured in nominal GDP terms. 55 % is insane growth number because considering technology companies were only 15 % back in the 60s and we were around 40 % back in the 1990s. So this begs the question, where is that money coming from? And where is it going? Peter Diamandis writes that global corporate AI investment hit 252 billion in 2024.

7:16Private investment was growing 44 % year over year. And private investment alone reached$109 billion. Peter says that this is an example of money following conviction. Returns, in my experience, the returns tend to show up months and years after the capital investments are made. And it's impossible to deny right now the fact that companies are shoveling money into that AI trade. So when will these companies reap the benefits? That's one of the great debates on Wall Street right now. Now, me personally, my personal opinion is I am of the belief that the profits will be much larger than everyone is anticipating.

7:52but investors like you and me, we're gonna have to think long-term in order to capture them. But likely everyone is underestimating how much profit is going to be generated by these investments. And lastly, if we think more short-term, there's a common mantra in public markets, sell in May and go away. That argument is that stock returns after the month of May are not worth the risk. But Creative Planning's Peter Maluk shows that the time period between May and October Returns are still positive on average, about 7 % annualized. And stocks are higher 72 % of the time. So maybe that mantra isn't as accurate as everyone wants it to be.

8:32Every data point I'm seeing right now, it's telling me the same thing. Investors should be allocating money into the market and investors should be preparing for a strong continuation of the bull market. There's a lot of noise out there. I hear it every single day. Frankly, the pessimists, they're watching the recent market recovery with hatred in their hearts and minds. They don't want to see this happen. It means that they were wrong. But none of their critiques matter, though. Companies across the U.S. economy are collectively working to lay the foundation. They're laying the foundation for the next 100 years of economic growth.

9:05We're upgrading everything from our infrastructure to our power systems to our software. And the investors that clearly see this trend and can position themselves with the wind at their back, those are the investors that are gonna be very happy in the coming years.