Big Technology Podcast - Is AI Actually Saving The Stock Market? — With Tom Lee

Episode Date: June 25, 2025

Tom Lee is the chief investment officer at Fundstrat Capital and head of research at FSInsight. He joins Big Technology Podcast to discuss whether generative AI wave is actually holding up the stock market and what would happen if it stalled or fell apart. We discuss what an AI 'Black Swan' event would look like, whether the bubble would pop, and what happens if AI gets too good. Tune in for the second half where we discuss how Lee predicts stock market movements, why the market is holding up well, and whether bitcoin has room to grow. For complimentary access to Tom's daily insights, market alerts, live webinars, and stock lists, you can visit ⁠⁠fundstrat.com/tom⁠⁠ --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. Want a discount for Big Technology on Substack? Here’s 25% off for the first year: https://www.bigtechnology.com/subscribe?coupon=0843016b Questions? Feedback? Write to: [e-mail]

Is AI really holding up the stock market? And what happens if it fails or stalls? Let's talk about it with legendary strategist, Tom Lee, the chief investment officer at Fundstract Capital, who's here with us in studio today. Tom, great to see you. Thanks for coming down. Great to see it, Alex. So I want to start just by testing this truism that people have been saying about AI and the stock market for a long time, which is that the only thing holding up the stock market is the AI trade. You're somebody who looks at this all the time.

Is that true? It's true and it's not true. Okay. Because, like, for instance, if you measure it by net income contribution, it's pretty broad-based. You know, the financials are growing earnings very strong this year. So banks? Yeah, banks. Industrials are contributing a lot to earnings growth.

Of course, tech is. And tech is a big contributor, but not 100% of tech spend is AI. A lot of it is maintenance cap-ex and expansion cap-ex. and, you know, the catch-up for spending that's been deferred because of COVID, et cetera. So a lot of the capital expenditure that we're seeing, right, because we see that big tech alone, the Magnificent Seven loan, is going to spend something like $350 billion in capital expenditures this year. A lot of people say, oh, it's $350 billion in AI spend. But what you're just saying now is it's a little more nuanced than that.

Some of it's AI spend, but some of it is just keeping up what their operations are relying on. Yeah, I mean, but as a narrative, AI makes sense that it's a U.S. story because most of, really, there's only two places where AI innovation is taking place is the United States and China. And in China, we don't have that many direct investment plays there. So if someone is looking for reasons to be overweight the U.S., it is AI. But that's different, in my opinion, than AI is driving the stock market. Okay. Like, it's driving the narrative, but it's not necessarily driving. driving the market. How much of the stock market is driven by narrative? Because we're going to have some people here who are very familiar with investing and some who are more on the tech side. So just for the broader audience, is the stock market like a story driven thing? Or is it totally based off of the fundamentals and the numbers?

So let's say do approximate percentages. Okay. So let's just say that there's two ways to value markets. One is the underlying earnings. and the second is the expectations of either how good the existing numbers are or how much they can grow. So, in other words, that's all the narrative part is essentially evaluation. And to me, the adage in the stock market historically has been it takes a whole lot of E to offset PE. Meaning? Meaning that earnings can move 5% or 10% versus what you thought, but the reason the stock might go up 50% is more because of narrative. So I think that in like a very simplistic sense, narrative drives stocks more than earnings do over the intermediate term. We can see it in stocks that essentially have turned shareholders into customers, like stocks like Tesla, or,

Palantir define, they defy people's fundamental understanding of earnings because the valuation of the stock relative to its earnings seems far greater than someone can explain, but that's because these have really compelling narratives. Right. And so with earnings, we're talking about profits. Yeah. And Alex, I might be forking here, but. Fork away. I believe Tesla and Palantir and stocks like hymns are proof that money is not how you measure the value of a stock. Because if money is determined as the earnings per share, the value of a company isn't just the amount of money that it represents. It really represents a customer's trust in the actual business model. Okay.

And so that's where P.E. can actually be much higher, even for a level set of earnings. So I'm going to go now, now that we've had this discussion about what creates a value, I'm going to go back to my original question, which is how much does AI, how much is AI responsible for where the stock market is today? Because I asked you that question in the beginning, and you began by saying, well, we're seeing earnings in banks and other places in the economy. But as far as the narrative goes, that's all artificial intelligence. And if we go back to 2022, we're in a place where we were seeing runaway inflation. know if it was slowing growth, but there people were talking about stagnation as if this was a thing that could persist. We had the Fed raising rates, making the economy, you know, with the intent of slowing the economy down, and then in comes chat GPT. And what happened since then? I think the S&P 500 is up, what, 50% since then? So with that context, I want to ask you again,

how much is AI responsible for where the stock market is today? Yeah. And again, I'm going to point out it's the narrative. Like, that's really what people talk about, but it's not even what's not necessarily driving share price gains. I mean, a few stocks have, of course, done very, very well in terms of share price gains. But the reason I'd say it's not necessarily the thing driving the stock market is that there's other narratives that do drive multiple expansion. So, for instance, If we had this AI story, but we thought the Fed was going to continue to tighten and actually reduce monetary liquidity, then we wouldn't actually have a rising stock market. I don't know if AI could power through a Fed that would be trying to kill the economy. Or if oil went to 300 because of some geopolitical event and was at a sustained level, and so we had a receipt.

session. I don't know if we could have a market doing well. And I don't, as strange as it sounds, I think it would be tough for the AI trade to work just because cost of money would be so high or, you know, you'd have a lot of companies getting super cautious and then AI would be forking and developing somewhere else outside the U.S. So the answer is narratives drive prices, but AI isn't the only sort of story in the stock market. Okay. So when you said yes and no, I think the answer that you're giving is actually no, that the AI story is a nice thing that's happening on top of a bunch of other positive things.

For instance, the Fed becoming more doveish and making these moves to lower rates, earnings actually increasing across the broader economy, not just in big tech. And so then maybe artificial intelligence, this idea that this moment could lead to like real productivity gains, that just gives it like an extra boost on top of the other things that are happening. Yes. Yeah. I mean, AIA is part of the narrative, but there's a lot of the narrative for the markets. And I do think one of the reasons, like let's say that a lot of your viewers are bearish. And they're bearish and they've been trying to expect the stock market to go down or maybe they sold stocks in April.

And then they're like, well, the only reason markets are going up is AI, and I think they're already overvalued. They're missing that there's a lot more to sort of the narrative of the S&P that explains why stocks are doing well. So that's why AI is important, but it's not the only story in the stock market. So just as we sat down, you had mentioned that we've seen a Black Swan event every year since 2020. COVID inflation. The list goes on. Yeah, we had COVID, which was 2020. Then we had the bullwhip supply chain effect, which is that we shut an entire economy down, then reopened it, and all of a sudden people didn't have visibility through the entire chain, so there was a lot of double ordering. That bullwhip typically bankrupts and creates cyclical

swings, but we didn't have that, which is amazing. Then we, as you said, in 2021 to 2022, the fastest surge in inflation almost ever, right? This was almost exactly like the 70s. Then the fastest rate hikes in history, four of four of those events should have caused a lot of companies to fail or earnings to decline. S&P earnings grew that entire period. And then number five, was Tariff Liberation Day, because that was essentially like the Cuban Missile Crisis of our generation, right? Like, the entire world was held hostage to a singular decision. And yet, many people predicted recession, right? Remember all the economists suddenly said 60% chance of recession? Right. And then a lot of people said, well, set your clock. In 30 days, inflation's going to go through the

roof. Or you're going to have good shortages. And, you know, we're now well past 30 days. And inflation's been tame. There hasn't been any shortages, and companies are raising earnings estimates. So that's the fifth black swan. I mean, all of these, before they happened, we would have said the S&P should go down. It should be a bear market, and none of these have actually led to a sustained bear market. And by the way, it's interesting that all of them are supply chain related? Yes.

What does that say? Well, you know, it's, we, something to keep mind is that S&P 500 is a lot more sensitive. to the manufacturing economy. So even though, like, we say the U.S. is a services economy, and most of what we do is, like, services, actually, most of how S&P makes money is actually, as you said, it's through the supply chain. But is it manufacturing in the U.S.? Or is it the, there are companies that will effectively create the designs and then outsource the manufacturing to places like China?

Well, see, in that sense, it's actually still a manufacturing economy. Like, technology is a manufacturing economy because you have to make, you have to turn things into silicon and then build data centers. You know, so it's, it actually is a supply chain. So it doesn't matter. It's a manufacturing economy, but it's a global manufacturing economy. Yes, that's right. Manufacturing is definitely not constrained by geography. Right.

Okay. And then that's why supply chain is so important. Yeah. Because if you're so reliant on stuff moving back and forth. then if there's a hiccup in your supply chain, or if you increase the cost of shipping from one country to another, like you would with tariffs, then you get into trouble. By the way, most people may not realize this, but, you know, money has to move through a supply chain. Talk more about that. Well, let's say that you're a bank in Asia and then you want to move money to the United States.

You have to move it through an intermediary, and then from there it gets moved. to another intermediary. So there's a supply chain. In fact, if you're a global bank, so take Barclays or J.P. Morgan, and you have money in, let's say, Japan, and you want to move it to the U.S., you have to use an external intermediary to move the money. Banks can't internally transfer the money because it violates OFAC or FinCEN. If a bank has money in Chicago, a branch in Chicago and they want to move it to Texas, they have to move it externally through the supply chain back into the bank. Otherwise, so like you'd think, oh, they just do an internal transfer because it's all accounting and money is like imaginary in a sense anyways. It's just

digital, but they can't. They actually have to move it externally first. Okay, I think we're going to probably put a pin in this and then come back to it when we're going to talk about Bitcoin later in the conversation. But the reason why I brought up these Black Swan events is I want to run an idea by you that's come up in some of the discussion around. artificial intelligence and tech. And this idea is that if AI progress stops or collapses, that could be a black swan event. Because you have the valuation of some very big companies being held up on the expectation that AI is going to work.

Nvidia, Microsoft, well, not Apple, but meta has definitely played their alphabet is getting, I think probably, well, maybe mixed reviews on AI. a threat in search. But a large part of what people call the Mac 7 has had a valuation bump because of AI. And then you think about the private funding. I mean, SoftBank is in the middle of, you know, we think this 40 billion, they're going to deploy a trillion into AI, 40 billion into open AI. Yeah. And if, and a lot of this is based on this expectation that AI will do people's jobs and become like the equivalent of human beings in many different disciplines. If that doesn't work out, then the bet, I don't want to say it goes to zero, but doesn't

work out. There's probably a lot better ways to put that money to work. So is it possible that an AI stall leads to another Black Swan event, or is that overplaying the AI story? I mean, I can picture some black swans driven by AI. AI could create a black swan if it's too successful because it's going to create PhD-level workers at a cost that breaks all economic models, right? I mean, what is the value of our work if something that is not us can do it better? and then if it's combined with like a robot then it can complete all tasks that and never tires never needs vacation it'll outperform every human and in that world and of course if it gets sentient then it really is a threat to like our modern civilization or it could even

make the definition money unimportant because you robots don't care about money, right? So that, I think, is, like, one black swan outcome is that it's terrible. But what's the percentage? Of course, you know, guys like Elon Musk and a lot of the books written about this, like the coming wave put the odds low because humanity hopefully intervenes. The second way it's like that you've described, the setup is that the bubble bursts in AI. And I think that's going to happen for sure. Wireless and Internet are to give us the template because wireless was an exponential growth industry from 1990. And the growth didn't slow until, let's say, 2015. So it was one generation, 25 years of compounding growth of 40%. The wireless

ecosystem from infrastructure handsets, software, carriers, the towers all peaked one-third into the cycle relative to the S&P. So they all became market performers. All, they were peaked all the same time. Nothing will break away. But then 10 years into the cycle, two groups broke out of wireless and captured the value. The tower industry, which was like a 10-bagger relative to everything else, and Apple, which was late. Apple was only a second chapter wireless story. So to me, the AI story is everything's going to peak at the same time. probably one-third into the cycle. But then in that period of consolidation and shakeout,

then one or two industries truly pull away and capture the value again. And so what does that shakeout look like? Seems like it could be ugly. Oh, yeah. It's going to be, well, we know that you have to create capital loss for investors. Like the internet bubble bursting. So when the internet bubble burst, it only triggered a mild recession in 99 because the loss was concentrated in tech mainly and some telecom

and it really hit some geographic regions very specifically the reason we had a bigger recession after that was because of 9-11 but it really would have been a mild recession you know like that's why the the GDP data was fine and actually like 90% of stocks were doing okay in fact small midcaps actually positively gained during that period of time because the internet bubble bursting didn't take down the economy. I think if the AI bubble bursts, you're not winding the clock back to zero, but it may have burst because it may be bursting because someone decides to do containment, like pull the brakes on this and saying, like, we're too close to generative AI or we're too close to sentience. I mean artificial general intelligence. Yes, sorry. I do you think that this industry is even capable of pulling the brakes?

I don't. I think people are going to have to make some decision, because you're right. I think AI safety, like if we look at employment in AI safety, I think it's less than not even 1% of all jobs filled. If you look at the financial industry and say, classified job as safety, it's more than half of the jobs is safety. So the AI industry has to invest in safety, but you're right. There's like zero incentive for safety right now.

Because the financial industry doesn't have like an open source version of finance that's trying to build the same thing and give it away. And it's sort of keeping pace with their innovations. And like if we did a simple thought exercise and said, if you wanted to train morality of AI using internet, it's going to be the most un-moral entity ever because it sees that to gain and win has nothing to do with integrity. I mean, if you trained AI on the Bible, for instance, you would raise a highly ethical entity. So I think that's what we have to sort of fork as a society.

It's like, how much sentience do we want something to have that actually has no moral guardrails, right? Right. So the other side of it is, like I mentioned, maybe the technology doesn't work as planned. It doesn't get to this part. And that I think it could mirror that same thing that you mentioned with wireless, where there were expectations of the technology that weren't going to come to fruition until a decade later. But that, when you start to see that when you're one-third of the cycle, you peak then. How do we know that we're one-third of the cycle in with AI? I think I can sort of give you some guidelines that I saw in the late 90s, you know, that maybe we can just say or say roughly use it again today.

But so in 1997, I wrote this report called the Mobile Data Report, which was actually the first report that Solomon Brothers ever produced about like how the wireless industry could actually like replace computers. It's like, you know, what you could, mobile data, like what you could be doing. And, you know, like, we ended up, like, companies like WorldCom used this report to do their wireless strategy. But we thought mobile data could be like a $40 billion business by 20, I forget, you know, 15 years out, so 20, 10 or whatever. It turns out that, like, mobile data is like, turned out to be vastly bigger. But the stocks didn't do that well. And actually the companies that captured mobile data were it was like meta, which didn't even exist in the 90s, right? It was Omnyskye that was the company in the 90s in Palm Pilot, but they ceased to exist.

So Palm Pilot would have been the first iteration of an iPhone, right? So I think today or back then, what I noticed was people had had to play with their models to justify evaluations. So cost of money had to go to like 5%. And then the terminal PE or what you call the terminal multiple was higher than the best stocks we're trading at today. So you had to rewrite the entire industry to justify the valuations. So you knew that someone was going to take a loss because these are unrealistically funded models. So, you know, Nvidia is not crazy today, you know, because it's 30 times earnings, which is not a premium. Toyota traded at 40 times earnings for years in the 90s, just making cars.

And Nvidia is not making a car. You know, they're making a really difficult to replicate chip. So I guess we're not there yet, but you'll know because everyone's having to fake their model to explain why they're still buying the stock. But let's talk about the private companies. I mean, I know it's private, so everything is different in the private market. But open AI is in the middle of this. We know they're at least getting $10 billion, maybe $20, maybe $30, maybe $40, maybe $40. they're losing, they lost $6 billion last year.

They're probably going to lose money this year. They're not going to make money according to their projections till 2029. Now, if they work and they reach AGI, great. If they don't, what happens? Yeah. Well, fortunately, like, let's say, you know, the Open AI and the peer group collectively isn't multiple trillions, right? But it is nearly a trillion, ultimately, when we get to the peak evaluation for all these things. It's not that different than what happened to when the Internet bubble burst.

Fiber industry really was required, consumed so much capital. I don't know if you followed the C-Lex back then, but they were digging up rail lines, digging up cities to lay fiber. and then people said after the internet bubble burst, there's so much fiber, we're never going to use any of it. Like we have so much excess capacity. But after the bubble burst and fiber prices collapsed, a couple things happened. You know, the second owner of a hotel made money.

So the people who ended up owning these. And then because you lowered the price, there was a lot of innovation. It created travel companies. You know, like Expedia wouldn't exist without. Netflix couldn't exist without collapsing. fiber prices. Although Netflix actually never paid for carriage, but, you know, I mean, like internet streaming became profitable. And so I think that will happen with a lot of code that it may be re-rated, as you said, because it's so open-sourced. And I'm not making a prediction. I'm just saying

that that's possibly. What to look for. So let's just talk briefly one more, about one more thing when we talk about this potential Black Swan event with AI. And it's going to your first point of that it becomes too successful. So you mentioned that like, okay, if AI can do PhD level work, then basically people won't be able to make money working and society could fall apart. The story that the AI companies tell is that we'll have abundance and everybody will have exactly what they need and you can have one person that will do whatever they want because they'll have these warehouse, data warehouses of geniuses behind them.

why why why so when you went to the black swan uh possibilities you didn't take that side you took almost the other position why is that well i think it's possible that it's exactly what you described which is all of our needs are met without needing to work so housing and food and um i don't know a lot of recreational activities it means the monetary system probably ceases to exist. I mean, because then, for instance, do you need to go to get an Ivy League education or do you need to be the best student in your class when your robot's always going to be smarter than the smartest human in the class? You know, like, it's going to change what we define as achievement. Like, why do we work hard? I mean, it is, it's, some people might consider it

Nirvana because, let's say, the 10% of the people do aspirational, like, they live their life aspirationally. When we grew up, you know, not everybody wanted to be the best, but when you look at societal impact or in a company, like my former employer, which had 200,000 employees, the adage was always 20% did 80% of the work, or really like 8% did 90% of work right yeah well that there there's no incentive system for that anymore in a world of abundance so i do think it the consequences money may stop mattering and then if we're able to do whatever we want then why wouldn't there be a situation where everybody gets everything they need if money doesn't matter sure but then stock like stocks may not matter yeah you know like or what is a company

anymore because it's not a group of highly skilled people and if it's a group of high skilled robots well anyone can copy the code so then there's no advantage for a company i mean it's it's actually probably like one of the some people might say that's a good idea i think that would be kind of a very dangerous outcome okay all right i definitely want to talk about which AI companies are going to win and touch on a little bit about why the market has been so resilient, and then maybe talk a little bit about Bitcoin. So let's do that right after this. Hey, everyone, let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than two million

professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines in 15 minutes or less, and explain why you should care about them. So search for the Hustled Daily Show and your favorite podcast app, like the one you're using right now. And we're back here on Big Technology podcast with the great Tom Lee, the chief investment officer at Fundstrat Capital, also the head of research at FS Insight. Tom, it's great to have you here. I've been looking forward to this for a while. So I think that just to tell folks who you are, I see you on CNBC all the time. You're CNBC contributor, as am I,

and you have these amazing moments where like you'll show up. up on Squackbox and be like the S&P 500 is going to go up, what, like one or two percent tomorrow, and then it does. How do you know these things? You know, a lot of it is evidence-based because we do a lot of sensitivity analysis to try to understand where we are in market. So a lot of our statements that we make are high probability statements. but for that to actually happen is luck in a sense right because something that has an 80% chance of happening doesn't prevent this being one of those 20% days that it doesn't happen so right because if something let's see if something happens 90% of the time and it's happened a million times but the next three times it doesn't happen so like those three calls fail statistically it's still going to stay at 90%.

for accumulated history. So it is always risky to say something has a 90% chance of happening. But that's usually the reasons we make these kind of calls. And just quickly, in a very high level. So when you're ready to say, okay, the S&P is going to jump and there's like an 80% chance that's going to happen, what signals are you pulling from? Like you said, you're looking at the sensitivities and different evidence. Yeah. Well, a lot of times markets make big moves because of surprise. So we have to, like today, we're seeing it today with like Tesla. And but the reason there's a surprise is that in a general sense, there's something that, say, anchors the valuation of a company. Let's say it's earnings or this S&P. Like, let's say that what anchors it is the Fed's dovish, okay?

But then we worry about tariffs and recession. So like that's pulling down the market. You can always look for what will counter that argument of recession. And like for us, this year, it was the high-yield market because high-yield spreads need to widen to like 800. The spread over treasuries has to be 800 basis points. So if the 10 years at 4%, high-yield would need to be at 12% to tell you that a recession is almost guaranteed. But high-yield during the tariff turmoil only widened by 150 basis points or so, maybe 200. which is just a growth scare, if even.

So the reason we stayed bullish into the April low was because high yield said the chance of recession is probably 10%, whereas the economists were saying it was 60, and we could tell by positioning and what stocks were selling off, the SP down 25% has priced in like a 60% or 70% chance of a recession. So that's how we can kind of go on and say the market could make a full recovery because high yield is telling us

there's not a recession and it's a better economist than economists. Okay. So it's just looking at some data points and being like, all right, if this is what people are doing in the bond market, for instance, then therefore we think that even if the headlines are afraid or the research reports are pointing to doom,

then these signals show us a different path. And it kind of gets to like the broader market here, you've, like you mentioned, you were bullish in the April law, which means that when, just because I explained for our non-finance listeners, when the market went down and, you know, we were in full bear market or correction territory, your belief was things were going to come back and they have come back. And I think you mentioned to me that you said that investors, this was previously, we've talked previously, and investors were frustrated with the bounce because they're looking at everything and they can't figure out why the S&P 500 is actually. actually positive for the year. And honestly, sometimes I can't either. Like we're talking again, this is Monday, June 23rd. The episode comes out Wednesday morning, the 25th. We're talking literally in the aftermath of the U.S. bombing, Iran, and the S&P 500 is up on a Monday. But the things that you pointed out where the Fed is still hawkish, people think inflation is high, oil could go higher, and you said stocks have moved without explanation. So what gave you the confidence to

believe that we weren't going to see a deeper dip with the market and predict that it's come back. And I think your belief is that it will continue to go up. Yes. So we do have a published history of our research. So clients, our clients can check, fact check us. But as the market was falling after Tariff Liberation Day, it was falling in a waterfall decline. And so we wrote very early that there have been 12 similar waterfall declines. What's a waterfall decline? It's a stock market that falls more than 10% within, I think we did it as a two-week period. It's really rare to basically, like, literally cause a plane to drop, you know, 10,000 feet.

And almost every waterfall decline is a V-shaped balance unless there's a recession. so that's why we got so keyed up on this high yield market because if we fall but we don't have a recession that just means everyone just panicked they did a fire ready aim and so we argued you would have a v-shaped recovery and a v-shaped recovery is a symmetric bounce back to the old highs and of course everyone argued against it for logical reasons they said tariffs they're not going to be solved for a year you know uh the feds Fed's not your friend. The Fed is going to, there's no liquidity coming like in 2020, so you can't have a bounce. There can't be any fiscal stimulus. 25, no liquidity. Well, no, in 2020, the Fed did a lot of QE. And they're like, there's no QE coming. But we said that history says you have a V-shaped balance, especially if there's no recession. Okay.

So that's what made this so hard for people to accept because the Fed was hawkish and we still had a V-shaped balance. I think that's the real lesson. The Fed liquidity is a myth. You don't need Fed liquidity for stocks to recover. I'd say that's really my takeaway from the bounce. And then for this week, there is an old adage that when it comes to war, you sell the buildup into war, but you buy the invasion. Right? That's a crazy saying.

Or they say you buy when the guns fire, you know what I mean? But that's true. So we were advising our clients that you sell the buildup, but you buy the invasion. Why do people buy the invasion? Is it because when the buildup happens, you imagine the worst case scenario and the war doesn't end up in the worst case scenario often? I think the simple thing is like it's pulling off the band-aid. So you're more worried about how painful it is, but when it comes off, nothing's changed. What if the war is really bad?

Well, so here it was our calculation, which I think maybe people would agree. The U.S. wouldn't take action if they thought it would. would daisy chain into a prolonged war because there's no appetite. And Trump clearly said he doesn't want to pull us into a war. So if they're taking action, they've either signaled ahead to Iran that this is a limited action or they know that whatever action they're taking is decisive and limited in scope. So that's why I could see why you would buy the invasion, right? And it's, I mean, who knows. I mean, there's a lot of signs that maybe we did help indicate to Iran it's limited because, you know, Iran had the trucks and the U.S. was aware of all these trucks moving

material, but they didn't stop it. So it was sort of like, look, we don't want to topple the regime necessarily, but this, whatever, we're going to blow this thing up. And I don't know. I'm not a political expert. I'm just saying I can understand why we're rallying today. But to do this job well, you have to be, you have to game plan a little bit. for like, or you have to get into the minds of leaders. The Iran strike is one example. Another example, of course, is what you just said about tariffs, which is that I think this idea that we would, if we have this like very quick dissent in stocks that typically

they bounce back without a recession, well, that assumes that effectively that Trump was going to take his foot off the gas pedal on tariffs. Yes. So we also had been pretty clear in our client communications that he was going to walk back tariffs. So how do you make that determination? Well, part of it is guess. Okay. Because I don't, I don't sit in the White House and I'm, you know, I don't know what's happening, but I do know that we could look at a, at the prior first term. And I also had some belief that outside of Navarro and maybe one other, there wasn't broad-based support to try to reshape the entire economy around tariffs, especially because tariffs weren't legal.

And so we were actually early in flagging that this was an unprecedented use of tariffs, which meant, and as you know, subsequently has been shown that it may not survive court challenges. So that's why we thought eventually there would have to be some dialing back. just a quick aside since we've done a couple of forks it is interesting that terrace was the first moment there was some daylight between Elon and the administration that continued to build when it came to the big beautiful bill yeah do you think Elon kind of maybe this is a crazy idea but do you think he kind of like jumped on the grenade in tariffs and like publicly publicly bashed him to sort of start a rollback even if it meant the end of his partnership with trump because they were too important for Elon's business to continue. Like the rollback was too important for Elon's business because of his partnership with China and the supplies coming in from outside. Yeah. Look, that could, you never know Washington because you know what?

There's a lot of misdirection. Right. And so that's very plausible. What I would say is, I would say it's clear that the White House was enchanted with the idea of using tariffs. but as much as they war game did and they thought how everything would react like all these other countries react and how the constituents react at the end of the day they no doubt had a off ramp too and as opposition built they chose to take the off ramp like you know it probably would have been wrong and many did assume this is that Trump is going to stick with tariffs and that's it come on you know no matter what happens to a world economy it's kind of preposterous for people to have taken that stance. It would have made more sense to people to be up in arms, but realize that he's going to have to have an off-ramp. And, you know, the ultimate off-ramp is scapegoating somebody. And I think the ultimate scapegoat would probably

be Navarro if they have to get a full off-ramp of tariffs. So what's your view on what's going happen with tariffs from here because there are some deals, but there are still some big tariffs that are being applied to the OS economy. And we're in the middle, I think we're in the middle of one of our 90-day pauses. It's hard to keep track these days. So maybe things could go back on. Yeah. Well, you know, I think Washington's used to a lot of this extend. TikTok ban. The tick-tuck ban extending into perpetuity. I mean, like, it's the history of Washington. And, you know, even in finance, there's the term, pretend and extend. I mean, if there's some event and you want to delay it, you just keep

extending and pretending. So you're right. I would say no one should be up in arms if we have an extended pretend. So the threat of tariffs remains, because at the end of the day, he can do a different channel to actually implement tariffs. So there's no reason you lose leverage by extending it another 90 days. Are the U.S. and China to interlinked to get into a serious trade war? I would say there probably is a cold reality that if someone's trying to use tariffs to prevent China from making progress on AI, it's not going to work. But what about more broadly? And if anyone tries to use tariffs to harm China from gaining economic power, we know it can't work because its supply chains can move. What does that mean? Well, it's, it's,

will be, it'll be like a whack-a-mole. If we're trying to tariff China, but then they move manufacturing to another country, do we try to prevent that country from having economic access and close their borders? You know, I think at the end of the day, it's, we're trying to use the wrong instrument to cure a disease. Well, it's like the thing that happened with Apple, we, you know, has tear of China. Apple moved production or really assembly to India because it was Foxcon doing the assembly there Yeah, the parts they brought in from China. So what do you think the right? I mean, what do you think the right move would be for the United States if they're trying to tackle some of the, I think,

what is it, the power, the manufacturing that they're losing? Yeah. Well, you know, it, I think people forgot like sort of like that the conversation that was happening in the 2008, 9, 10 period, when, like Apple was opening manufacturing overseas. And, you know, Tim Cook or Steve Jobs, you know, said many times, it's easier to open a plant in China than it is in Wisconsin. You know, because the EPA has so much power to prevent you from doing things, and there's so many regulatory hoops to jump through that it wasn't just the labor arbitrage. It was literally the ability to actually just build a plant.

It's very difficult in America. So I think tariffs don't offset the regulatory burden that many companies face doing anything here. So really the best answer is make it easy for American companies to build, and that means reduce friction. Tariffs might be adding a lot of friction to the process. That's fascinating. Yeah, it makes sense. Right. I mean, I think there's a balance you want to take care of the environment.

I don't think China has as big of a dedication of that as the U.S. does. But oftentimes you can put power in the hands of these bureaucracies and it gets abused. Yeah. And so one of my friends was a private sector EPA lawyer and he passed away. But during that period of time, I had several lunches with him. And he says, Tom, what people don't understand is the EPA can literally prevent any merger from happening because they can raise an environmental concern that has nothing to do with. the actual business. And so you had basically enormous power wielded by folks who didn't necessarily care about letting technology stay in America. And so, and it wasn't necessarily that

it's polluting. It may be because the guy's close to some, you know, someone who runs a garment factory doesn't want the garment to go out of business. So it's, you know, it's non-economic friction. And, you know, today, robots should. literally make labor not the reason you can't do any production. Because, you know, China, I'm sure, you know, you know more than me, Alex, but like China's iPhone manufacturing advantages, they move huge populations of female workers to produce phones because they have the finger dexterity, but they can only, like, work for 90 days because they burn out from the intensity. But, you know, robots now have, you know, the same dexterity. So you don't, that's not the constraint, like to be building iPhones in China. Yeah, I think when we talked about Black Swan of AI becoming Ph.D. level, to me, I would say the even more near-term labor concern is that robots are getting real good. Yeah. And we are living in, I think, probably the last few years where an Amazon warehouse will have a human picking an item out of something that comes to you via robot and then putting it in a bucket and then taking it in a bucket and then taking it.

it out of that bucket and putting a label on and shipping it. We're going to hit a point where that's going to be completely automated by robots, whether it's humanoid or a human-like hand that does that. That's right. And remember, a robot gets paid the same salary in every country. It is a completely what I would call a fungible commodity, right? It's not, there's no pay differences. So whoever can make a robot that does this is now exporting a global labor force. Yeah. And of course that means you can bring a lot back to the U.S. too. So my sense is that China is pretty far ahead on humanoid robots. When you look around the world, do you have a sense as to where these might come from? Yeah, it's going to only be three,

maybe four countries. It's China, USA, Japan, and Germany. Now, I would say over time, there is going to be concern about the ethical safety of a robot. And that's why I think a Western developed robot will be more widely adopted than a non-US one. You know, because you never know if there's like a hidden, like, switch that turns it into murderer, you know, or one that turns it into spy. You know, a hidden chip, hidden code. So I think that's why arguably China's AI is way ahead of the U.S. Because they've had better surveillance and therefore their robots will be more intuitive. But then, you know, can you trust a million of these robots in America?

You know, like, yeah, go ahead. I'm just, like, I'm just, I'm not trying to be a conspiracy theorist. I'm just saying. These are real issues people are going to have to deal with. Yeah, I think provenance matters, you know, because it's provenance. Is this like a sleeper spy? This is my sort of crackpot theory of the case, but I think that we are underestimating when we talk about humanoids,

how violent human beings will get against them. We just saw in L.A. there were this burning of the Waymos. You can look at that at a bunch of different ways. I think it's being underappreciated how that is, in some ways, a symbolic revolt against automation and big tech. And if you, let's say, okay, just putting this in a story context, you work in a factory. A humanoid robot comes in and takes your job. The next day you see a humanoid, let's say, delivery robot walking down the street.

You can't provide to your family anymore. You know that thing has cameras on it. You don't care. You're tipping it over at the very least. Yeah. It's going to be very, it's going to be the, if this happens, it'll be the most difficult tech rollout we've ever seen. Yeah. Yeah, because you're exactly right.

There's going to be a distributional consequence of a robot. So until we get to that world where someone says there's abundance, there's first displacement. And yeah, if people are displaced and they can't be reemployed and they're idle, why wouldn't they be angry? You know? Yeah, it's the history of the world. That's what happens. Yeah, it could be organized sedition. Like people could be trying to blow up a robot factories or sabotage robot.

robots have to charge. There's probably going to be real estate where robots go to get charged. So that's maybe where people, you know, attack, you know, where robot taxis park. You know, who knows? It's, you're right. I've already seen it in some ways with the Tesla as well, that's kind of totally unrelated. So let's look into your crystal ball for a moment and talk a little bit about what's going to happen in the near term with the AI wave. So it is interesting. I've heard recently that there's a real dispersion in terms of where the gains are coming from in the Magnificent Seven in this AI moment. So if you look at the companies that are up, you have Nvidia up 7% year to date, meta up 13% year to date, Microsoft up 15% year to date. The companies that are down, Amazon down 5%, Google down 15%, Tesla down 15%, and then Apple down 17%. And if you're trying to assess like, well, I mean, obviously it's not all AI related, but the ones that are up definitely have the better AI story. So do you think that we're going to see like the Magnificent

Seven sort of split off into the AI winners and AI losers? There's definitely going to be winners and losers. Some of the loser categories will turn into winners. Some of the winners will turn to losers because we were deceived because something forked. One name you probably didn't mention but should be considered an AI winner is Netflix. Oh. Um, because, well, one, because of course Netflix is probably using a lot of AI as a not necessarily producer of AI, but, you know, it benefits from it. But it more reminds me of Domino's Pizza. So like, you know, the theme of the last 20 years has been, there's been a labor shortage around the world. And that's why, like, wages are higher.

So you think staffing stocks should have done better. But, like, stocks like Robert Haft have underperformed the S&P. So, like, if labor was a theme and you buy Robert Haft, you lost money. But if you bought Domino's Pizza, you bought one of the five best-performing stocks over the last decade. So it was better to feed the worker than to supply the worker. Netflix is more like a Domino's Pizza story. Interesting. Yeah.

But Apple, like, for instance, is interesting. I know maybe it's derating because they think, well, they're not in front of robots and they're not in front of robotaxies and they're not leading an AI. But, you know, Apple might do what they did in 2007. They weren't cutting edge on making the first mobile phone, but they, in 2007, after the bubble burst, introduced the iPhone. And so maybe they'll wait for AI evaluations to come down or the, you know, the innovation curve to slow. And then, you know, the innovation curve to slow. Apple gets the best and takes the lead. So I don't know.

Now, I want to state for the record that this is not an investment advice podcast, informational purposes only. Yes. So take what you're hearing and view it in that lens. But you've put together a very interesting ETF. It's called the Granny Shots, E-T-F, that allows investors to play on some of these themes. Yes, that's right. Talk a little about it. So Granny Shots, Ticker, G-R-N-Y.

Why is it called Granny Shots? Is it a shot so easy that a granny could make it? In a way, yes. It's named after the way of shooting a free throw unconventionally underhanded. Popularized by Rick Berry, NBA Hall of Famer. But the idea of a granny shot is that doing a granny shot is the correct physics way to throw a basketball. And that's why your completion percentage is higher. Rick Berry was 90% for free throws.

So we decided that when we looked at how market performance was over the last, actually several generations, thematic investing explained performance better than macro and stock picking. So meaning it's better to identify the things driving the market and own the strongest stocks. For instance, the Gen X trade, which I'm a Gen X, was just Internet, buy Internet as a theme rather than try to buy like a drug stock or something, you know, at, you know, P.E. of 10. So we constructed the seven themes that are the most important to the market. And then we find the strongest stocks in each. But a granny shot has to be a stock linked to two themes. So essentially, it's a 35 stock list.

I look at it as these are the 35 most important stocks in the S&P. Forget the other 465. And since inception, Granny Shots has outperformed. The S&P year-to-date at Granny Shots is up 9%. Morning Star ranking, it ranks as top three percentile. Since the April low, it's a one percentile step, beating 99 percent of funds. So I think it's really proof that our approach to thematic investing, which is what FundStrat does, and Grannie Shots was originally a research portfolio for six years before we launched it,

shows that if you know that most important themes anchoring ideas, you can outperform and AI is only one of seven themes so it's just why when we talk about is AI driving the market I can point to many other things that have really been driving performance okay now before we leave we have to talk

a little bit about crypto so you and I were both at this investment forum that Stephanie Link from Hightower put together it was a great event and there were a few things that you said that stuck with me

and we've talked about a bunch of them today but one thing that you mentioned is you advised everybody to buy some Bitcoin and that Bitcoin has a lot of runway left. I have said on the show for a while that I was skeptical of this Web3 idea that you can build on top of the blockchain. And I'd love to hear your thoughts on that. But to me, I think that Bitcoin running up to it's at $101,000 per Bitcoin right now is pretty remarkable. And the fact that it has surged, even as a lot of the Web3 hype has collapsed, maybe it follows that path that you, you were talking about as to like, things fall off after, you know, one third or the way through

the cycle, but something ends up coming through. So I wonder if Bitcoin is like that in your mind, whether it is a thing that comes out. And then, sorry, this is a long question, but let me just give you my thought on why we might be towards the top of Bitcoin. And I'd love to hear your argument against it, which is that we basically have a president in the White House that is, you know, as pro-crypto as you could ever get, who's launched his own coin. We could talk about that another time, but basically the question is everything that Bitcoin Maximus of want to happen has happened. It's not being traded by mainstream financial institutions. So why does it have an opportunity to go up from here?

I think Bitcoin's utility is going to go up exponentially in the next 10 years. So one of the reasons Bitcoin has risen to $100,000 is just simple network value. When we first wrote about Bitcoin in 2017, and Bitcoin was under 1,000, we had said it could get to $25,000 by 2022 because it's a network value asset. So we just said if you model number of wallets and activity per wallet, which explained 90% of the move of Bitcoin from 2009 to 2017, you would get to $25,000, 2020. to, and you know, you can get to the six figures later. And that's true. It's still like 87% explained by those two variables. But Bitcoin is now about to become a lot more useful for two reasons. One is it's becoming less regulatory burdened, right? The White House is really creating it as a strategic reserve asset. And companies are putting in their balance sheet

because it's the way people used to have real estate owned in retail. Like that wasn't a thing, but then people realized it was valuable to own the real estate. Like some retailers are more valid because they own the building. That's what Bitcoin is your working capital is. And then, but banks are also quite interested in Bitcoin because of stable coins. So stable coins might be the Web3 app that's really recreating financial services. Because, one, a stable coin works better than a regular dollar. You don't have to send it through middlemen to transfer.

Yeah, that's right. Now if you want to move billions and trillions, you just use the stable coin market. And it's proving to be more profitable for a bank circle. Like, I won't comment its valuation, but as a net income or tether is a better example because it's not published. How do you trust those tether people? Like, you don't really know what's going on. Well, that's where, see, this is where blockchain comes. in that you blockchain has proven you don't need to know the counterparty you just have to trust the code

and so tether from a net income basis makes more money than most financial institutions i think it's would be the third most profitable financial institution in the world wow so what's a better bank right what's a better financial services model is building it on the blockchain so i think stable coins is the killer app that's proving because Bitcoin anchors everything because you know you don't need a stable coin unless you had Bitcoin. So Bitcoin

and building financial services on top of stable coins and financial services companies are getting it now. Even Walmart, Amazon want a stable coin because it's actually quite profitable to have one that you are changing the financial system through crypto.

So Bitcoin's not at the top. Yeah. So if you, again, model this out and utility? Because remember, stable coins is only a $250 billion market today. So you realize that stable coins collectively are the 12th largest holder of U.S. treasuries. They own twice as much as Germany, for instance. Wow. So the U.S. government does, in fact, want stable coins to proliferate because it's a guaranteed long. Stable coins never have declining assets of U.S. Treasury markets. And dollar dominance. Its dollar dominance is only 27% in GDP terms. It's 88% in traditional financial market trading. 80%. It's 100% of the quoted pair in

crypto. Dollar dominance is stronger in crypto. Stable coin usage is only 20% in the U.S. Almost 60% of stable coins trading takes place in Hong Kong, China, and Japan. So you can see that it's creating more demand for dollars outside the U.S. And therefore, Bitcoin will continue to go up? Yeah, because Bitcoin secures the entire blockchain. Okay. Tom, we got to do this again. I think we could spend a whole hour talking about Bitcoin.

But I'm so glad you came down here today and spoke with me in person. We're going to do a couple of webinars for your FundStraq community, which I'm really sad about. Yes, that's going to be this Wednesday on the 25th, so the day this airs. Alex, I'm really excited about it, you know, I can't wait to do it. I'm definitely excited. We should talk about the killer robots. We're on there. And thanks again for this really insightful conversation about AI, the stock market,

crypto and tariffs, all the things. So I definitely leave today much more, I think, illuminated on where things are going than I was before. So thanks again, Tom. Great. Thanks. All right, everybody, thank you for listening. We'll be back on Friday with Ron John Roy to break down the news. Until then, we'll see you next time on Big Tech. Podcast.