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

Ed Elson and Scott Galloway are joined by Tom Lee to map out where he thinks markets are headed by year-end. He explains why he’s still bullish on crypto, what would force him to rethink his stance, and the red flags he watches for in earnings quality. He also breaks down his bullish case for the Magnificent 7 and software stocks, and how he stays confident through volatility. Tom Lee is the co-founder, managing partner, and head of research at Fundstrat Global Advisors. Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:29Scott Galloway?

  Today's number 70. That's a percentage increase in US adults who listen to podcasts weekly compared to 2022. Ed, I've had several people tell me that Michael Symbalas, the chief investment officer of JP Morgan, 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 Symbalas 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 Symbalas dad joke, let's hear it. What do you call a fake noodle? What? An impasta.

• 2:24Scott Galloway?

  Michael, we love you. Don't be angry at us. Reach out. Reach out. Forgiveness is a wonderful thing, Michael.

• 2:33Ed Elson?

  I love it. Shall we get into our, our talk today? We have a very interesting conversation with Tom Lee.

• 2:38Scott Galloway?

  One of our favorites. The what could go right? Tom Lee, I love Tom.

• 2:42Ed Elson?

  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 2026. 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 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 Fundstrat Global Advisors.

• 3:26Ed Elson?

  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 and P up nearly 9% in the first half, the Dow up 8%, the Nasdaq up 11%. There are certainly some winners and losers among them. You know, 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.

• 4:02Tom Lee?

  2026 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, 2024, 2025, the fourth year actually tends to be pretty solid. That was one reason we were 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, 2027 S and P earnings. Consensus and very similar to ours was $350 and now it's currently 400.

• 4:46Tom Lee?

  So it's risen by $50 and the PE on 2027 earnings was at 19.4 at the start of the year. 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. You know, part of it is this AI and energy infrastructure build that's taking place.

• 5:28Tom Lee?

  Part of it is this trend towards onshoring 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 buoyant, but there are two sort of other factors to weigh in now that we're mid-year. One is that margin debt is much, much higher now than it was at the start of the year. In fact, it's risen 55% year-over-year. That is, I think, the fifth highest year-over-year increase ever in almost 70 years.

• 6:08Tom Lee?

  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 probably stay bullish.

• 6:48Ed Elson?

  I'm anxious about this market in a lot of ways because I look at the Shiller P E 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 we're seeing, they hinge on these contracts with these AI companies whose ability to actually pay out on those contracts. I think it's not unreasonable to say that they should be at least questioned. OpenAI and their spending plans, Anthropic and their spending plans, SpaceX, et cetera.

• 7:31Ed Elson?

  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. 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 X, Y, Z. I'd just be interested to hear your views on my, I guess, skepticism.

• 8:16Tom Lee?

  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 fab production or there's a long lead time, so they can take price instead. So now you're going to get more flow through to the bottom line, but that creates the bullwhip effect because we know ultimately the supply chain catches up.

• 9:01Tom Lee?

  And then there is concentrated spenders because we know hyperscalers 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'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 what how much multiple you apply to the earnings

• 9:42Tom Lee?

  growth. That being said, I think a lot of the activity is mainly taking place in four countries. 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 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.

• 10:20Ed Elson?

  So when you look at the like the Schiller PE, 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 bubbletious? 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.

• 10:53Tom Lee?

  One thing that we've done in the past at when I was at JP Morgan, then we continue to maintain at FundSTRAT is, you know, you can run a Schiller PE by sector.

• 11:05Tom Lee?

  And that way, it kind of more is apples to apples. Like, for instance, if you did text Schiller PE, 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 Schiller PE is not nearly as extended just because the composition of earnings now today is increasingly coming 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.

• 11:49Tom Lee?

  And in 99, that wasn't 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 and 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 Schiller PE to be higher. But a fair question, I would add to what you're saying is like, is credit spreads, you know, is credit underpricing risk? Because, you know, the tenure's been going up,

• 12:32Tom Lee?

  and I've been surprised at how tight high-yield spreads have remained and investment grade. You'd think that with geopolitical risks and the high level of rates that is creating a cost of capital burden, that spread should widen, but they haven't. And, 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.

• 12:57Scott Galloway?

  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? And what do you see as the second order effects of some of these bigger IPOs coming down the pipeline?

• 13:28Tom Lee?

  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.

• 13:43Tom Lee?

  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 dollar 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 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

• 14:26Tom Lee?

  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 SpaceX only raised 18 billion in its entire history. And it turned into 1.5 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 them money against their holdings. And so I think it actually boosts GDP. So you're right, Scott, there's countervailing forces. My take is that

• 15:12Tom Lee?

  The broad economy is going to benefit from all these IPOs because it's massive wealth unlock. 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.

• 15:39Scott Galloway?

  Let's stick on this notion of capex and our second order effects of specifically of these AI companies who've made these extraordinary commitments around capex, which I believe has elevated a lot of these stocks. And I'll put forward a thesis, it looks like OpenAI might be shelving its IPO. I got to think that that means the momentum has shifted or the growth expectations aren't living up to expectation. Do you have any fear that 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 are you less worried?

• 16:17Tom Lee?

  Well, there's a lot of things that can go wrong with the AI story, Scott and Ed, 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 hyperscaler data center. And I think that we don't exactly know why both Anthropic and OpenAI delayed their IPOs. I think that's actually very curious because both would benefit from one going public first.

• 17:01Tom Lee?

  Nobody would want to be last, you know? I think it's possible it has to do with the US government.

• 17:10Tom Lee?

  Throttling, uh, new models, right? 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 US government is actually saying like, we gotta like, look at all your models now?

• 17:28Tom Lee?

  And then they gotta like throttle their plans? Maybe? I don't know. I mean, but to me, it's curious. I actually think SpaceX is a, is a huge success. So I, I don't think SpaceX has any reason, anything to do with OpenAI and Anthropic selling their IPOs.

• 17:46Ed Elson?

  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 Dudum, the CEO and co-founder of Hims and Hers.

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• 19:08Ed Elson?

  We're back with Prof G Markets. I mean, just to push on this idea of like, why, why is OpenAI 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, OpenAI is a little bit of, in 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, you know, almost $40 billion. If you look at like the operating profitability, they lost around $21 billion last year. What we know about AI at this point is that the revenues are,

• 19:49Ed Elson?

  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 OpenAI, I mean, we saw that their financials were leaked recently. The reaction was a little bit not great. Just on an 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 our business

• 20:32Ed Elson?

  out before we go out. I'd just be, 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 where we have, there's so much riding on these companies, and yet they haven't figured out their business models.

• 20:47Tom Lee?

  Okay. Well, I'm just going to speak my opinion because I don't really have the full facts. I think if OpenAI 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. OpenAI and 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.

• 21:23Tom Lee?

  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. But I mean, again, I'd say it's curious to me, but I, I think investors, when they look at Open and 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, which, because they are two, two very unique businesses.

• 22:08Tom Lee?

  But again, I'm not an insider, so I don't know.

• 22:11Ed Elson?

  Do you, as an investor, like that story personally? This is the thing that I, 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 unanswered question. I'd be curious to hear how you view it personally.

• 22:40Tom Lee?

  This is still a story that's going, is being written in the future tense. Like we're only chapter one. At best, we can make guesses, analogies. I mean, for instance, not to fork the conversation, but to me SpaceX is the, the, 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.

• 23:14Tom Lee?

  And they made it the most valuable spectrum in the world. Like Elon was able to get all the global spectrum for like nothing. Whereas in the US today, 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 to, how could Facebook be even better on a mobile?

• 23:57Tom Lee?

  Because, you know, there was so much richness on the desktop version. But if that's, that was the key to them take stealing the advertising business. OpenAI Anthropic with, because of their creation of basically complex reasoning models, who knows what kind of industry they're going to subsume? Like, we think maybe it's just advertising. Maybe we're oversimplifying their, what their actual business model is. 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?

• 24:41Tom Lee?

  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 runs as IPOs still.

• 24:54Ed Elson?

  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 OpenAI as an example, not working? They don't make that home run? That it, something 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 that ought to be priced in, not just in terms of the price of OpenAI, but also in the price of the markets at large, which have become so dependent in a lot of ways in OpenAI succeeding and also OpenAI spending lots and lots of money and paying for all of this compute and all of these chips.

• 25:38Tom Lee?

  Well, it's an interesting irony because. The more successful OpenAI 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 ChatGPT, like, what should I do next, right?

• 25:59Ed Elson?

  I know, he might be.

• 26:01Tom Lee?

  But the self-actualization of like, his strategy requires highly, highly skilled humans. You know, so like, it's a very much a people's story to make both amazing companies. And you're right, so you're betting on Sam and his vision, and you're betting on Anthropic's 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.

• 26:31Ed Elson?

  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 and 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 semis 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 that we'd hoped,

• 27:11Ed Elson?

  it seems as though you're going to see a very, very significant and violent shift to the downside.

• 27:19Ed Elson?

  But it hasn't happened yet, and the story continues to roll on. I assume that's on your radar.

• 27:25Tom Lee?

  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, you know, even as important as OpenAI is and Anthropic, if they were to, let's say, stumble here, I think S and 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 in every point in history since the 1940s 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

• 28:09Tom Lee?

  key man risk. And you know, it's been amazing because you know, we've never really had a Fed Chairman suddenly like be 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 here at 7,300, it, you know, I just remembered in 2009, the market bottomed at in the 600s. So, you know, I mean, it's, it's definitely come a long way, but fortunately the multiple

• 28:52Tom Lee?

  is lower today than it was in 2009. But you're right. It's, 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.

• 29:22Ed Elson?

  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 run 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.

• 29:41Scott Galloway?

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

• 29:56Tom Lee?

  It's one of the things that is fairly hard to measure explicitly because I think that what AI has proven.

• 30:09Tom Lee?

  Is a couple 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 at Fundstrat Capital and Fundstrat, where we are deploying essentially an army of researchers, but it's really just our Claude agents. And, but it's also revealing the nature of work, because most people say, hey, this is a 40-hour-a-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

• 30:52Tom Lee?

  that most people in that 40 hours probably only work X percent of 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 of the 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,

• 31:37Tom Lee?

  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 of 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 of stone, and it's like the same price as your house.

• 32:19Tom Lee?

  And we could recreate all of this wonderful architecture that Europe had built, that you can't build in America today, but with robots. So I think there's going to be that kind of productivity when robots gain a lot of capabilities.

• 32:36Scott Galloway?

  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 400,000 combined. Do you think Amazon will benefit from that great sort of robotics age that you're envisioning?

• 33:13Tom Lee?

  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 Roebuck, they could probably deliver homes and then their robots could be 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.

• 33:58Tom Lee?

  So yeah, I think, yeah, I think that makes a lot of sense.

• 34:01Ed Elson?

  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 and P was 7,700. We are tracking to hit that, but you changed that in your halftime report, half year report. You now see the S and P hitting eight thousand by the end of the year. But with this caveat, which I find interesting, that you think that the S and P 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.

• 34:44Tom Lee?

  Yeah, we did raise our target to eight thousand, which is basically $400 in 2027 earnings. And then we trade at 20 times that multiple, that would be eight thousand. 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 Warsh has some ambitious goals. You know, he wants to re essentially reconfigure how the Fed functions. And he has five task forces. One of those is redefining inflation. You know, the second is analyzing

• 35:28Tom Lee?

  communications. The 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 a cadence of conference, press conferences. Prior to Powell, though, you know, a 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

• 36:11Tom Lee?

  that's going to be tough when he himself wants to keep inflation at, 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 really starts in the fall. The third is this war with Iran is creating a cumulative and growing deficit with petroleum products because the Strait of Hormuz 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, it's oil that

• 36:54Tom Lee?

  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, 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, 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 constructive because I think there's enough skepticism now. But even from that, whatever level we peak at, I think it's a, it's a big drawdown.

• 37:38Ed Elson?

  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 my mind's on. 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 comeback from that correction if we see it?

• 38:02Tom Lee?

  Whenever there has been a severe correction in the US market, 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, the pullback associated with the war would be a V-shaped recovery.

• 38:23Ed Elson?

  You did say that, yeah.

• 38:24Tom Lee?

  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 front load on negative shocks. So that's why I think we, we could have a very severe correction. But unless the economy

• 38:41Tom Lee?

  Is 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 and of course, you know, it'll be put to the test, but that would still be my default belief.

• 39:05Ed Elson?

  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 to war with Iran. Looking 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 7 and the IGV, i.e. software stocks, stocks that got pummeled by the SaaS apocalypse and then SaaS apocalypse

• 39:50Ed Elson?

  two. I'm also with you on that. But why are you long Mag 7 and IGV?

• 39:57Tom Lee?

  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 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 salespeople and engineers and they're all witnessing what we're witnessing. And there's many ways that they can benefit from AI.

• 40:41Tom Lee?

  So to us, it's the derating that's taken place in all of those stocks that tells us the risk reward is really attractive.

• 40:53Ed Elson?

  We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com.

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• 41:43Scott Galloway?

  We're back with Prof G Markets. So Tom, crypto is well off its highs. Bitcoin's down, it's been cut in half. Ethereum's lost about two-thirds of its value. Your firm Bitmine, a digital asset treasury, yesterday bought over 40 million of Ethereum. Why are you bullish?

• 41:59Tom Lee?

  The reason we were bullish on crypto at the start of this year and really for the last 10 years is that cryptocurrencies 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 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 stablecoin rails. And I think over time, I think using blockchain actually as a replacement for a lot of the

• 42:43Tom Lee?

  legacy financial rails. For instance, there's a Goldman Sachs conference in Europe, in London, today, and the number of attendees is actually almost tripled from a year ago. Similarly...

• 42:58Tom Lee?

  I'm bullish on crypto because I think as agents and AI become a lot wealthier. And we're starting to see, um, you know, agents create wealth for us and robots create wealth for us. To us, the opportunity um 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 delegated agents make more money than us, we're going to wonder if we work for them or they work for us.

• 43:36Tom Lee?

  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 role 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 uh macro. You know, the monetary policy is not dovish. It it looked dovish six months ago, right? Market 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 purview

• 44:20Tom Lee?

  over that industry, you know, that's still stuck in the Congress processes. And AI, of course, has done so well that it's I think it's not only taken away attention, but it's actually taken away investor capital. So I think those are, to me, uh, 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 industry and actually to how we manage AI.

• 44:48Ed Elson?

  Two companies that have are huge companies, extremely profitable.

• 44:55Ed Elson?

  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.

• 45:10Ed Elson?

  What do you think of those companies?

• 45:12Tom Lee?

  I'm very confident both are going to

• 45:17Tom Lee?

  play this, play 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, 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 story. But, uh, 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.

• 45:57Tom Lee?

  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 cloud. So to me, I think that they have a dashboard that they, 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.

• 46:23Ed Elson?

  I'm with you on that. Looking at the, the stocks that have crushed this year, it's basically like semis. And there's some interesting data from Torsten Slok at Apollo, which is that semiconductor stocks now account for 19% of the S and P. So it's literally a fifth of the entire market. It was below 10% in 2025.

• 46:47Ed Elson?

  I'd just be curious to hear how you think this semiconductor story is going to play out? Because that, that's really what's driving the market. We could, 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, it's really like, it's, the, 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 such a violent swing to the upside so far?

• 47:24Tom Lee?

  You know, semis, you know, historically been a very cyclical group. And, you know, and you you traded them on on book to bill ratio. But over the last couple of cycles, you know, that's become less the story. And, you know, the the very question you're asking is, you know, is this a long cycle? Or has something changed, you know?

• 47:47Ed Elson?

  Yes, exactly.

• 47:48Tom Lee?

  And for the moment, like for 2026 and maybe even 2027,

• 47:54Tom Lee?

  neither neither will actually matter because in the near term, the visibility is very good.

• 48:01Tom Lee?

  I might guess that semiconductors 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 TAM. You know, it was the same set of buyers. And then, and there might have been capital raised and and and you had the bullwhip effect affecting the semi, everything from semi cap equipment to the semis. But but this time, we're looking at, you know, robots, which are very semiconductor intensive versus an iPhone. You know, like the amount of semiconductor that you need to put into a robot is what?

• 48:47Tom Lee?

  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 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 space, you know, I mean, what conditions do they have to survive in? They're going to be quite. Unique. And so I think there's a chance that it is a it's a new story for semis.

• 49:15Ed Elson?

  Yeah, it does seem like that's exactly as you put it. Is this a big cycle? Or has something changed? Yeah, I think it's I think both are pretty reasonable outcomes and it's it's a really tough one. Just as we start to wrap up here, some of the stuff that you mentioned in terms of risks. You had your your big test this year, 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

• 49:58Ed Elson?

  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 OpenAI'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? And how do you think about that shift?

• 50:29Tom Lee?

  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

• 50:51Tom Lee?

  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 the risk is a 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 to to 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's 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

• 51:33Tom Lee?

  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.

• 51:43Scott Galloway?

  Emerging markets up 25% a year today, more than double the S and P's gain, and that's after increasing 34% last year. One of our big themes 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. Your thoughts on the US versus emerging markets?

• 52:04Tom Lee?

  I can believe the emerging markets outperformance thesis. I actually only focus on the US, but to me,

• 52:13Tom Lee?

  AI is a whole new infrastructure build.

• 52:17Tom Lee?

  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, it's Taiwan and I'm sure a lot of emerging markets. So to me, structurally, it makes sense that some countries should outperform because they might have higher beta to this structural story.

• 52:45Tom Lee?

  And therefore their economies will outperform and therefore stocks.

• 52:49Ed Elson?

  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 it'll be V-shaped and we'll come right back. This is more on the crypto side of things. So obviously crypto has gotten pummeled this year, Bitcoin and Ethereum.

• 53:11Ed Elson?

  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, 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, 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 would?

• 53:50Tom Lee?

  You know, crypto is hyper volatile. So Bitcoins fall from, you know, 120,000 to 58,000. And Ethereum, which is, you know, beta to Bitcoin, falling from 5,000 to 1,600. That's fall still within the historical parameters of like the crypto bull and bear market cycles. So price hasn't moved to a level that would say anything's broken. But what has been broken is the fact that stocks have done well this year and crypto's done badly. And I think part of it is some of the macro things and, you know, that Scott and I discussed,

• 54:31Tom Lee?

  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 mousetrap, 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 blockchains. You know, it's just not happening to our everyday lives just yet. And this, and for the same reason why I think a lot of the AI engineers are tinkering with using blockchain

• 55:14Tom Lee?

  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, I believe you're going to see Bitcoin over 100,000 by the end of the year and Ethereum, you know, back to over 5,000. So, 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 bounce from June to September, then you're right, maybe something's broken.

• 55:53Ed Elson?

  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 ever think about, think about that?

• 56:03Tom Lee?

  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.

• 56:14Tom Lee?

  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 of book value.

• 56:40Ed Elson?

  Yeah, so, okay, that's that's helpful context. Final question. When you think about your investment philosophy, you you're kind of bullish by nature. Like, you think about what 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 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?

• 57:12Tom Lee?

  One of the things that I learned from my earliest days on Wall Street, because this is my 30, 35th year as a research analyst, is that I think that there is something unique about US innovation. You know, I think that the 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.

• 57:57Tom Lee?

  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 and P 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.

• 58:31Ed Elson?

  Tom Lee is the co-founder, managing partner and head of research at Fundstrat 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 Fundstrat, he served as JP Morgan's Chief Equity Strategist from 2007 to 2014. Tom, this was awesome. We really appreciate your time.

• 58:58Scott Galloway?

  Thanks, Tom.

• 58:59Tom Lee?

  Thank you.

• 59:01Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Shalane, Isabella Kinsel, Kristin O'Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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