Tom Lee Says It's NOT A Bubble And Stocks Are STILL Cheap

0:00Hello, everyone. Today, we got a very special treat. I sat down with Tom Lee, one of the greatest analysts on Wall Street, and we talked about stock market, the Federal Reserve, the macro environment, AI, is it a bubble or not, Bitcoin, and a bunch of stuff that he's working on. I always enjoy talking to Tom because he is a perma-optimist, and he continues to be very accurate about where the world is going. So here's my conversation with Tom Lee.

0:34Before we get into the episode, please help me get to my goal of 1 million subscribers on YouTube. We have just over 32 ,000 subscribers today, and I need your help to get to that goal. Hit the subscribe button and let's get into the conversation with Tom. All right, Tom, I thought a great place to start the conversation is everyone is worried about the AI bubble. We know that AI is real technology. We know the companies are using it, but people still think that there's too much spending going on. There's this big bubble that's going to pop. The world's going to end. The stock market's going to crash.

1:01What do you think? I mean, if we're measuring bubbles based on like risk reward, we're pretty far from it because in 1998, September, which is similar to today because Fed was on pause and then they started cutting again September 98. Cisco, which was the biggest company at the time, was trading at 56 times Ford PE. 18 months later, it got to 210 times. Now, Cisco made a commodity router that had many competitors. NVIDIA today is the singular most scarce company in AI. They make a chip that everyone who is building a premier model needs. It's trading at 27 times forward earnings. Costco trades at 50 times forward earnings and Walmart's 34 times.

1:47So NVIDIA is still cheaper than a membership club company. So I'd say that's why we're pretty far from a bubble. And when you bring that up to people who are skeptical or critical of kind of the AI companies, what is their response to that? I think people then say, well, there's a generalized stocks are expensive problem. And because I was just in Latin America, and that's what a lot of the pension clients said. But to me, the problem people have is that stocks are trying to discount the future. And AI is not only a labor replacement, so we can calculate, you know, job replacement, and that's a use case.

2:24But then there's this agentic and super intelligence potential, which creates productivity. So how do we discount that in the stock prices today? I actually think stocks are still cheap. And I know Jensen was in New York recently, met with some analysts. And I think a lot of the takeaways people had is that in the AI world, companies, enterprises that are spending are starting to see payoff on the AI spend, which means spending is picking up. I actually think AI spending is actually accelerating. Well, it always is funny to me how people are yelling bubble, but the more people who yell bubble, it seems like the less likely we're in one.

3:03Yeah. Then how do you have a bubble if every time you hear an AI CEO open their mouth, they're like, we can't keep up with demand, right? And then on top of that, the earnings reports are coming out and there's companies that are trillion plus dollar market caps that are like, we're growing faster than we thought we were going to grow. We're driving more profitability with less employees, which means that they're becoming more efficient, more productive, hence they should be more valuable, right? Yeah. Yeah. And you make a key point because I've experienced three bubbles in my three decades doing research.

3:32The biotech bubble was the most recent. The one before that was the housing bubble and the one previously that was the internet bubble. And three of three times, not only were people denying the existence of the bubble because they could explain it away, but we saw behaviors that were indicative of a bubble. In the biotech bubble, healthcare hedge funds were funding university projects so they could get in front of the molecule. I mean, if that was like bubble behavior to me, and as you know, in housing, people were doing ludicrous and absurd things. That's not happening in AI. In fact, everyone's so measured in AI today that it doesn't feel like a bubble.

4:11There could be a bubble somewhere else in the markets, but it wouldn't be AI. So you mentioned valuation multiples. And one of the things that a lot of the older crowd who's been around for a while, their kind of brains break and smoke comes out of their ears when I say this. But I actually think maybe you can't use historical valuations the same way that you can today. And my logic has always been the companies are more valuable, but also there's like a monetary premium in stocks now that maybe previously didn't exist. And it's hard to quantify. So I don't know what are the comparisons, but the same way you have inflation adjusted prices, there almost feels like there needs to be like a monetary premium adjusted share, you know, multiple or something.

4:50Uh, yeah. And also people, uh, people are, are willfully overlooking that valuations are actually, they're, they're dynamic, you know, from 1940 to 1967, the 10 year went from 2 % to six and everyone should say PE should have fallen in that 27 year period. The PE went from eight times to 27 times. So in other words, as nominal rates rose earnings accelerated and so the pe went up and that was in a time when 70 percent of the earnings generated were cyclical today most of the earnings is recurring revenue in the s p which is higher multiple and in fact the 10-year bond is at four percent is at 25 pe i mean the bond market's expensive so uh yeah so i i think you're correct i mean plus in the last five years, we had six black swans.

5:49We had COVID. We had the supply chain bullwhip effect. We had an inflation bubble, the Fed's fastest hikes in history. We had the tariff terrors and US bombing Iraq's nuclear facilities, six black swan events. And the market grew earnings during that time. I would argue PE should be higher because we just battle tested the stock market. Well, if you go back to 2020, I mean, I remember living through that. And once we were on the other side of the recovery. I sat down with a group of friends and I said, is there anything that we could do that would be more disastrous for the US economy than lock everyone in their home, shut down their businesses, velocity of money goes to zero, and we're back to all-time highs, which then begs the question, Peter Lynch is famous for the like, if you spend 13 minutes on economics, you spent 10 minutes too long.

6:34I don't know, in the 70s and 80s, maybe actually the stock fundamentals were more important than macro. Today, it almost feels the opposite. Like, yes, you still need to pay attention to the company fundamentals, but like what the Fed does or what is happening in terms of like the momentum and, you know, kind of the sentiment online feels like it dominates the company fundamentals. Yeah, that's true. But, you know, in that six year period since COVID, earnings delivery has been amazing. So substance has been there. Yeah. So like even this quarter, 85 % of companies are beating results right now.

7:09And it's still going to result in basically 15 % earnings growth. I mean, so that's not late cycle earnings growth. Late cycle would be single digits. So companies are still finding ways to grow margins and earnings. And there's plenty of multiple expansion. I mean, financials, business results look more like tech companies now, but they still trade like financials. So I think there's a lot of groups that can re-rate. Yeah, it's pretty interesting. What about gold? Gold's been on this historic run. Do you think it's real? Do you think it's manipulated? Do you think it can continue? I mean, there's a lot of reasons gold probably is going up.

7:46And at Fundstrap, we don't do commodities. I kind of regret not recommending gold because it's been so great. I mean, because, you know, like generally, I like to be helping our clients be involved with things that are going up. So I think gold's move is like - It's a good strategy. Yeah, exactly. I don't want to fight it. What kind of business do you have? I help our clients' portfolios go up. Yeah. So gold's been amazing. I think what's really stood out is that you can explain gold's move by just pure technicals. Like I was talking to our technician, Mark Newton, yesterday, and he says that gold had a cup and handle pattern that the breakout was July of this year.

8:23And so the measured move should have taken it up to where it is now. But let's say price leads fundamentals. I think that July is also the time that the stablecoin industry started printing a lot more creations. And as you know, there's been gold stablecoins and dollar-based stablecoins, but a lot of the dollar-based stablecoin issuers are over-collateralized. So I think the stablecoin industry has been printing a lot of dollars, they're over-collateralized, and I think they've been buying a lot of gold. Interesting. I think that the stablecoin industry has been the newest bid for gold. more so than even like a China central bank?

9:02Yeah, because they've already been present. The central banks have been present for some time, but there must, there's somebody new buying gold on top of the retail buying gold. And I think that would be my guess because, you know, like I, I've now there's like seven or eight gold stable coins. Plus, you know, there's big stable coin issuers. And so that could be the bid to gold. Now, does that mean gold is unlimited on the upside? I don't know. I mean, I'm not studying it, so I don't know. But I think it's very bullish for Bitcoin and Ethereum because - Why? Well, gold moves first and then Bitcoin catches up.

9:41So I think that there is going to be the network value of gold just went up by a lot. And so let's say gold settles at 5 ,000. that puts fair value of Bitcoin, you know, like one six to 2 million if it matches gold's network value. So I think it's actually helping Bitcoin's future terminal price. So you think that if gold settles at 5 ,000 Bitcoin, you know, you take the gold market cap divided by the number of Bitcoin, then you get 1.6 to$2 million per coin. What's the timeframe for us to get there? Well, I mean, I can see that in five years for Bitcoin. So I think - Five years. Yeah. Yeah, I think Bitcoin - That'd be good.

10:20Yeah, I think Bitcoin doesn't get capped by gold. It actually gets pulled up by gold. Mm-hmm. Because it's growing the monetary base, right? Mm-hmm. Mm-hmm. And then this year, gold's up 60-ish percent. Bitcoin's up 18 to 20 % depending on the day. Do you think that on December 31st of 2025, we'll actually look back and could Bitcoin have outperformed gold in 2025 even though it has such a big lead right now? Yeah. I mean, we have a lot of time. We have 10 weeks. As you know, Bitcoin makes its move in 10 days a year. So are Bitcoin's best days in the fourth quarter? Probably because we have catalysts, the Fed's easing.

11:01We have a shutdown that's been risked off. We have China-US tensions that, look, every time there's a headline on China, like Bitcoin takes a gut punch, right? Because it is money flows and deleveraging. So that goes away. we have seasonality that favors stocks moving up stocks moving helps bitcoin so to me uh the chances of bitcoin having a huge fourth quarter are really high and not all of these would be tailwinds for gold so i you know i wouldn't count i still think it's possible bitcoin to hit 200 000 by the end of the year and what about the four-year cycle do you think that that holds or do you think that that was something that was broken by the institutional participation in the ETFs?

11:40Well, most of the crypto people I speak to expect a four-year cycle and they're adamant that maybe Bitcoin peaks early next year. But as you know, when something is so strongly held, it's very unlikely to be true. So either Bitcoin's already peaked or we have a longer cycle. I'm more in the camp that it's a longer cycle. But there would still be 50 plus percent drawdowns in the future or there's a kind of cycle is broken and you get something different? Yeah, I think I'm sure there'll be 50 % drawdowns because the stock market has more frequent 25 % drawdowns. I mean, that's when even though people realize, I mean, the stock market has made a lot of progress last six years.

12:29We've had an unusually large number of 25 % drawdowns and we probably have another S &P decline to 20 % next year. So if the S &P is down 20, Bitcoin could be down 40. You know, what's funny to me is for years now, I've been hearing folks who I would put in, they grew up in the stock market, they're kind of legacy system supporters and participants. They don't really get the Bitcoin and crypto thing. They have forever been saying, you guys don't understand, there's a big crash coming there. You don't know what a real market downturn is, whatever. And I always just think, I'm like, do these people realize that the people holding Bitcoin have seen two drawdowns of over 80 % in four years?

13:12That's never happened in the stock market. Yeah. Right. And so like in this crazy way, actually the crypto people are more prepared for market volatility than the stock people. But it's like, if you haven't like gone through the pain, you just don't think that exists or something, right? And like the stock people don't acknowledge the fact that you kind of have to be insane to hold to all the volatility in crypto. Yeah. And actually what I've noticed, and it's not true of every, but I've met some crypto skilled traders and a percentage of them are exceptional equity traders. Interesting. They've become so good at the EQ of like market moves that they're great at stocks.

13:52Not every crypto trader, because a lot of crypto traders are just, you know, DGENs. But so it really does cross over. I think being good at stock investing is not a skill that's learned at Harvard. Some people are just really good at it. Well, to me, I've always thought the crypto market is much more of a pure free market kind of macro thing as to how it was originally designed. There's no hours of operations. There's no circuit breakers. there, you know, all these less algorithmic trading, you know, it's just like very, very much how markets I think used to operate maybe 40 or 50 years ago. True over the counter market.

14:30And today the stock market is not that. And so you kind of have to like pick up the skill in a pure market. And then that makes you better at the, you know, somewhat manipulated game. Yeah. So I've, I've found some really, yeah, some crypto guys are really even good at timing the market. You know, they've been getting out at the right time. So it's. Well, they're definitely good at recognizing the bank run. So every single crypto person who had money in Silicon Valley Bank, they got it out for sure. This stock rally, you've called it the most hated rally. The recent sell-off because of Trump's tweet, you called a flesh wound.

15:01You're like uber bullish. I am as well, so I'm biased. But why do you think it's so hated? Why do these people want the market to go down? Why do they want the US economy to tank? Yeah. I mean, I can empirically show it's the most hated. one of the best measures of large investor sentiment is the AAII net bulls index, bulls less bears, because it's been run for 40 years. This year, it's averaged minus 11.7. So every week, the weeks through this year, there's only three other times in the last 40 years, it's registered negative 11.7. 1990 or more, 1990, 2008 and 2022, all were bear market years.

15:42So sentiment reads as if we're in a bear market and the market's up 15 % year to date. Why is it the most hated? I think we show this in our research that it's based on political divide. So the country is 50-50 Republican Democratic. But in the stock market world, and there's Pew Research data on this, 57 % of professional money managers are Democratic. 66 % of hedge funds are democratic and something like 69 % of venture capital funds are democratic. Interesting. So the risk capital world didn't vote for Trump. So they view his policies as that of someone who is destabilizing to the economy. In the bond market, it flips 80 % of credit managers are Republican.

16:33So that's why this year the bond market hasn't been, high yield spreads have been stable, credit spread's been stable, but the stock market's been volatile. I mean, it's fascinating to think about, I think the generalization is like the Republicans are the business and the investors and stuff like that. And they're the ones who are kind of going full risk on because of these policies. But what you're actually making the argument is, no, wait, majority of hedge fund managers and venture capitalists are Democrats. and they are just very defensive. They're actually negative on the potential outlook.

17:08Yeah. And so in a weird way, politics kind of is breaking some people's brains in terms of objectively looking at the market. Yes. And you can see it in maybe in the economic commentary this year, how many economists have said, oh, tariffs are going to cause a recession or tariffs are going to cause an inflation surge. That is actually a very subjective argument because tariffs are a tax. And if we treat it as a tax, taxes are not inflationary. So we'd never say it's inflationary. But the economists who are portraying it as inflation are, I think they're taking a specific view that makes it an inflation argument.

17:49So in other words, there's some sort of bias in that statement. Back in March and April, I was very loud about the fact that tariffs were not going to be inflationary. And I found out weeks later that reporters, people that I knew, no one wanted to ask me directly. So they were asking people who work here in our office, like, does he actually believe this stuff? Like, is he, you know, is he crazy, right? Or whatever. And I was like, I'm just looking at data, right? Like, you know, I've laid it out there, whatever. And now in hindsight, I realized that it was the political viewpoint of evaluating it.

18:21And there was an article that was written and somebody wrote, you know, MAGA shill or whatever the terminology was. And I was like, I'm like the most independent, you know what I mean? I've like constantly said about independence, whatever, but it was just like, if you believe that the tariff policy was good, you immediately got put in a political bucket. It's like kind of fascinating to then think about how people allocate their capital. Yeah. And it actually creates brain rot in the quant systems because quant systems pull off published commentary. So they see inflation. So the machines are trained to think it's inflationary when it's - And they interpret everything.

18:54So it's polluting the whole lens. And I think it's affected how equity risk managers did risk. Yeah. It's fascinating. What is your view, 2026, maybe as a place where we can close? Everything keeps going up. You mentioned S &P correction at 20 % earlier. I don't think people like hearing that. Maybe crypto, stocks, et cetera, and 26. Yeah. I mean, it's early. In a sense, I can give you some generalized thoughts, but I don't really have an idea of what the following year looks like until early December, because then we're only one month left in the prior market. Because this year, for instance, I think S &P gets to 7 ,000, right?

19:37But if we get to 9 ,000, then it pulls from next year. So price being a little unknown, I think there's a lot to be optimistic about in 2026 because uh one monetary policy is easing and that's room for mortgage rates to come down and we know there's a huge pent-up market for not only housing to be become more affordable like through allowing capital to become build cheaper homes and stuff but for people to have relief from mortgages the ism which is the benchmark of manufacturing confidence has below 50 for 32 months, the longest stretch in history. But once the Fed starts cutting, companies can get more confident so that ISMs recover.

20:23That's great for the US economy. We know there's onshoring next year. That's GDP activity. And then AI, I think, is becoming, as you just pointed out, like robots, agentic, super intelligence. These are huge innovations coming next year that are good for earnings growth. So I think the earnings picture looks good, but how much is reflecting the stock price? We don't know yet. Like if we exit this year at 7 ,000, then there's plenty of room for stocks to do well next year. If we end the year at 8 ,000, then we're going to have a 30 % drawdown. So I, okay. Yeah. Actually, I have one more question for you.

21:03Open door. What is your read on the retail activism campaign and kind of a business like that where you've got all the real estate kind of intersecting with monetary policy that's easing? Yeah. I mean, I'm rooting for Open Door to work. I haven't done the work. I mean, I'm a fan of Eric Jackson. I think he's really thoughtful guy. I mean, he's, look, first of all, he nailed the Carvana a couple of years ago. So like when I, you know, so I think Eric's very smart. Open Door, I don't know the business model. I think what I understand to be is like you buy homes and you're selling it. So that, I don't have expertise.

21:40But the idea that the shareholders can try to get the company to wake up and then change their business model, I'm all for that. That's what activists do. So I'm rooting for it to be successful. I just don't. I haven't done the work, so I don't know. Yeah, to me, it probably is the most successful activist campaign in recent memory, right? I mean, I don't know of an activist who's been able to get the CEO to quit, got the management to stop selling shares, bring in the former CEO of Shopify. You just go through all this and you're like, maybe the whole thing was don't have one person go active, have a group of people.

22:13Yeah, and it's all doing good things for shareholders, right? Because you're taking what's maybe a good structure of a company. I'm just saying I haven't done the work. Yeah, of course. But do you think we'll see this more? Like as the retail investors get more capital and almost get more confidence, do you see that this kind of becomes a trend where they start to pick companies and actually advocate for change? Yeah, I think if it's something that the public trusts, like a person, I'd be absolutely supportive of it because, you know, today social media gives people that are credible a good platform.

22:49Of course, if it's not a credible person, you don't want that to succeed. But, you know, the public can figure those things out. And then, of course, if someone disagrees, they can short the stock. So, I mean, I think as it plays out, it's healthy capitalism. Yeah, I agree. Where do you want to send people? All the people who listen to your genius thoughts today? Where would you like to send them? Well, there's a couple of places. If you care about markets, you want to check out Fundstrat and you can find us at Fundstrat on Twitter or we have a research service called fsinsight.com. But if someone cares about Ethereum and our treasury strategy, they should be focused on Bitmine.

23:29And Bitmine has a website, bitminetech.io and a Twitter handle, bitminer. And of course, on Bitmine, there's a lot of research on explaining the Ethereum supercycle and really the treasury strategy of Bitmine and how it's helping you get more Ethereum per share. Amazing. Well, Tom, thank you so much for taking the time to do this. We'll do it again in the future. Yep. Thanks. I told you that conversation with Tom was going to be pretty good. I hope that you enjoyed it. I always enjoy talking to Tom because he is somebody who really, really understands where the world's going. And he's also an optimist, which obviously I am as well.

24:07Please make sure that you continue to subscribe on YouTube, hit that subscribe button, help us get to our goal of 1 million subscribers, and I'll see you guys live tomorrow from the desk of Anthony Pompliano.