Tom Lee's latest interview: We are in a misunderstood "supercycle"

Video: Fundstrat

Compiled/Edited by: Yuliya, PANews

In an era where most analysts hold a cautious or even pessimistic view of the market, Tom Lee, Chairman and Senior Strategist of BitMine, has issued a completely different, strongly bullish statement. In this interview with Fundstrat, Tom Lee delves into the current macroeconomic cycle, the AI supercycle, changes in market sentiment, inflation risks, and the future trajectory of crypto assets. Tom Lee believes that the market is at a critical juncture in a "supercycle," and that investors' misjudgments of macroeconomic signals, yield curves, inflation logic, and the AI industry cycle are leading to systemic mismatches. He not only predicts that the US stock market will reach 7,000 to 7,500 points by the end of the year, but also points out that Ethereum and Bitcoin are poised for a strong rebound. PANews has compiled and edited this interview.

We are in a misunderstood "supercycle"

Host: Tom, welcome. Let's review: over the past three years, the market has risen by more than 80%. And you've consistently been among the few who remained bullish. In your opinion, where exactly did the 90% of analysts and bears go wrong from 2023 to 2024, and even this year?

Tom Lee: 80% of trades are essentially dependent on the macro environment. Over the past three years, investors have almost all considered themselves "macro traders," but they have made two key mistakes.

• First, they are overly reliant on the "scientific" nature of the yield curve. When the yield curve inverts, everyone assumes it's a sign of an economic recession. But as we explained in Fundstrat, this inversion is due to inflation expectations—high short-term inflation means higher short-term nominal interest rates, but they will decline in the long run, which is the real reason for the inverted curve.
• Secondly, our generation has never truly experienced inflation, so everyone uses the "stagflation" of the 1970s as a template , without realizing that we do not have the thorny conditions to cause that kind of sustained inflation today.

Therefore, people were structurally bearish, believing that "an inverted curve means recession and stagflation is imminent." They completely missed the fact that companies were dynamically adjusting their business models in real time to cope with inflation and the Fed's tightening policies, ultimately delivering excellent profits. In the stock market, time is the best friend of great companies and the worst enemy of mediocre companies, whether in periods of inflation or bull markets—this is a truism.

Host: I noticed that you think the current market environment is somewhat similar to that of 2022, when almost everyone was turning bearish. Now, with market anxiety returning, you've once again taken a bullish stance. What do you think is the biggest misconception people have about the current market situation?

Tom Lee: I think the most difficult thing for people to understand and grasp is the "supercycle." We turned structurally bullish in 2009 because our cycle research indicated a long-term bull market was beginning. And in 2018, we identified two future supercycles:

• Millennials : They are entering their prime working years, which will be a powerful tailwind for the next 20 years.
• Global labor shortage in prime working age : This may sound mundane, but it is precisely this factor that has laid the foundation for the boom in artificial intelligence (AI).

Why is there a fundamental difference between the AI boom and the dot-com bubble?

Tom Lee: We are in the midst of an AI-driven boom, which is causing asset prices to rise continuously. This is actually a textbook example: from 1991 to 1999, there was a labor shortage, and tech stocks boomed; from 1948 to 1967, there was a similar labor shortage, and tech stocks also boomed. Now the AI wave is repeating this pattern.

The problem is that many people view stocks with high Sharpe ratios as bubbles and attempt to short companies like Nvidia, but this view may be biased. They forget that today's AI industry is completely different from the internet of the 1990s. Back then, the internet was merely a "capital expenditure frenzy," while AI is a "gain of function."

Host: Many people compare the current AI boom to the dot-com bubble of the late 1990s, and even compare Nvidia to Cisco back then. You personally experienced that era, what do you think are the fundamental differences between the two?

Tom Lee: This comparison is interesting, but it contains a fundamental error. The lifecycles of telecom capital expenditures (Cisco) and GPUs (Nvidia) are completely different.

People have forgotten that in the late 1990s, the core of the capital expenditure boom was the telecommunications industry—laying fiber optic cables, not the internet itself. At the time, telecommunications spending in emerging markets was linked to GDP growth, and this craze spread to the United States, leading companies like Quest to frantically lay fiber optic cables along railway tracks and under streets, while Global Crossing laid submarine cables globally. The problem was that the internet consumed these fibers far faster than they were laid; at its peak, nearly 99% of the fiber was idle "dark fiber."

Today, the situation is completely reversed. Market demand for Nvidia chips remains strong, with its GPUs currently operating at almost 100% capacity, providing immediate and complete support to meet market demand. The supply of Nvidia chips is far from meeting demand; even with a 50% increase in production capacity, all chips would be quickly sold out. The industry currently faces three major constraints: Nvidia chip supply, related silicon materials, and energy supply. These factors collectively limit the speed of market expansion. Meanwhile, the rapid advancement of AI technology is far exceeding expectations, further exacerbating the demand for hardware. However, capital expenditure has not kept pace with this trend, and the industry as a whole remains in a state of undersupply. In other words, AI capital expenditure is still "lagging behind the innovation process."

Year-end market forecast and the potential of cryptocurrencies

Host: You've mentioned several times that the S&P 500 could reach 7000 or even 7500 points by the end of the year. Among the sectors you're optimistic about for the year-end market, which do you think will bring the biggest surprise?

Tom Lee: First, market sentiment has become quite pessimistic over the past few weeks. The government shutdown temporarily pulled money from the economy, and the Treasury's lack of disbursements led to a liquidity crunch, causing the stock market to fluctuate. Whenever the S&P 500 falls 2-3%, or AI stocks drop 5%, people become very cautious. I think the bullish sentiment is very fragile; everyone feels the market top is coming. But I want to emphasize one point: when everyone thinks the top is coming, a top can't form. The dot-com bubble peaked because nobody thought stocks would fall.

Secondly, you must remember that while the market has performed strongly over the past six months, investor positioning has been severely skewed, indicating significant underlying demand for stocks. In April of this year, many economists declared an impending recession due to tariff concerns, and institutional investors traded accordingly, effectively preparing for a massive bear market. Such mispositioning cannot be corrected in just six months.

Now that we've entered the year-end, 80% of institutional fund managers have underperformed the benchmark index, the worst performance in 30 years. They have only 10 weeks left to make up for it, which means they will have to buy stocks.

Therefore, I think a few things will happen before the end of the year:

• AI deals are poised for a strong comeback: Despite recent setbacks, the long-term outlook for AI remains unaffected, and the company is expected to make a major announcement in its 2026 outlook.
• Financial stocks and small-cap stocks: If the Federal Reserve cuts interest rates in December, confirming that it has entered an easing cycle, this will be extremely beneficial for financial stocks and small-cap stocks.
• Cryptocurrencies: Cryptocurrencies are highly correlated with tech stocks, financial stocks, and small-cap stocks. Therefore, I believe we are also poised for a large-scale cryptocurrency rally.

Host: Since you've mentioned cryptocurrencies, what level do you think Bitcoin will reach by the end of the year?

Tom Lee: Expectations for Bitcoin have decreased somewhat, partly because it has been consolidating sideways and some early Bitcoin holders (OGs) sold off when the price exceeded $100,000. But it remains a severely underweight asset class. I think Bitcoin has the potential to reach highs of over $100,000, or even $200,000, by the end of the year.

But what's more obvious to me is the potential for a significant surge in Ethereum's price before the end of the year. Even Cathie Wood has written that stablecoins and tokenized gold are eroding demand for Bitcoin. Both stablecoins and tokenized gold operate on smart contract blockchains like Ethereum. Furthermore, Wall Street is actively positioning itself, with BlackRock CEO Larry Fink aiming to tokenize everything on the blockchain. This means expectations for Ethereum's growth are rising. Our Head of Technology Strategy, Mark Newton, believes Ethereum's price could reach $9,000 to $12,000 by January. I think this prediction is reasonable, meaning Ethereum's price will more than double between now and the end of the year or January.

Overestimated inflation and manageable geopolitics

Host: You mentioned that the Fear & Greed Index closed at 21 last Friday, in the "extreme fear" range; the CME FedWatch Tool shows a 70% probability of a rate cut in December. Do you think this performance pressure will also prompt institutional funds to flow into cryptocurrencies such as Ethereum and Bitcoin?

Tom Lee: Yes, I think so. The S&P 500 has recorded double-digit gains for the past three years, and this year it could even exceed 20%. At the end of 2022, almost no one was bullish. At that time, wealthy individuals and hedge funds were advising clients to shift to cash or alternative assets—private equity, private lending, venture capital—but these asset classes were all crushed by the S&P. This "mismatch" is backfiring on institutions.

Therefore, 2026 should not be viewed as a year of bear market. Instead, investors will likely return to chasing high-growth stocks like Nvidia, as their earnings are still growing at over 50%.

Meanwhile, the crypto market will also benefit. While the market generally believes that Bitcoin's four-year cycle is nearing its end and a correction is imminent, this assessment ignores the macroeconomic environment. They forget that the Federal Reserve is about to begin cutting interest rates. Our research shows that the correlation between the ISM Manufacturing Index and Bitcoin prices is even higher than that of monetary policy. Bitcoin is unlikely to peak until the ISM index reaches 60.

Currently, the cryptocurrency market is constrained by insufficient monetary liquidity. The Federal Reserve's quantitative easing (QT) policy is expected to end in December, but no clear easing signals have been released, leaving investors confused. However, as these macroeconomic factors gradually become clearer, the cryptocurrency market is expected to see a more positive performance.

Host: In your opinion, what is the most overvalued risk in the current market?

Tom Lee: I think the most overestimated risk is "inflation reversion." Too many people believe that monetary easing or GDP growth will create inflation, but inflation is a mysterious thing. We've had years of loose monetary policy without inflation. Now, the labor market is cooling, the housing market is weakening, and none of the three major drivers of inflation—housing, labor costs, and goods—are rising. I even heard a Fed official say that core services inflation was picking up, which we checked and found to be completely wrong. PCE core services inflation is currently running at 3.2%, below its long-term average of 3.6%. Therefore, the view that inflation is strengthening is incorrect.

Host: If an unexpected event occurs, such as geopolitical events, war, or supply chain problems that cause oil prices to surge, would that become a variable that makes you turn bearish?

Tom Lee: That's certainly a possibility. If oil prices rise high enough, it could cause a shock. Looking back at the three economic shocks not triggered by the Fed, they were all commodity price shocks. But for oil to become a heavy burden on households, its price would need to reach a very high level. In fact, the energy intensity of the economy has decreased in recent years.

Therefore, oil prices would need to approach $200 to cause that kind of shock . We've come close to $100 before, but it didn't cause a shock. You really need oil prices to triple. This summer, the US bombed Iran's nuclear facilities, and some predicted this would cause oil prices to surge to $200, but in the end, oil prices barely fluctuated.

Host: Yes, geopolitics has never been a long-term drag on the US economy or the US stock market . We have experienced localized shocks, but geopolitics has never caused a real economic recession or a large-scale stock market crash in the US.

Tom Lee: Absolutely right. Geopolitics can destroy unstable economies. But in the US, the key question is: Will company profits collapse because of geopolitical tensions? If not, then we shouldn't use geopolitics as a primary reason to predict a bear market.

How to overcome fear and greed

Host: What will the market do if Federal Reserve Chairman Powell unexpectedly does not cut interest rates in December?

Tom Lee: In the short term, this will be negative news. However, while Chairman Powell has done a good job, he is not popular within the current administration. If he doesn't cut rates in December, the White House may accelerate its plans to replace the Fed chairman . Once replaced, a "shadow Fed" may emerge, and this new "shadow Fed" will establish its own monetary policy. Therefore, I don't think the negative impact will be so lasting, because the new chairman may not be subject to various voices within the Fed, and the way monetary policy is implemented may change.

Host: I have many friends who have been holding cash since 2022 and are now in a dilemma, fearing both that the market is too high and that they'll miss out on even more opportunities. What advice do you have for this situation?

Tom Lee: That's a great question because many people face this dilemma. When investors sell stocks, they actually need to make two decisions: sell and when to re-enter the market at a better price. If they can't tactically re-enter the market, panic selling can lead to missing out on long-term compounding gains. Investors should avoid panic selling due to market volatility; every market crisis is actually an investment opportunity, not a time to sell.

Secondly, for investors who have missed market opportunities, it is recommended to gradually return to the market through a "dollar-cost averaging" approach, rather than making a lump-sum investment. It is suggested to divide the investment into 12 months or longer, investing a fixed percentage of funds each month. This way, even if the market declines, buying in batches can provide a better cost advantage. Waiting for the market to correct before entering should be avoided, as many investors hold this view, which may lead to further missed opportunities.

Host: How do you view the roles of retail and institutional investors? Some believe that this bull market was mainly driven by retail investors.

Tom Lee: I want to correct a common misconception: retail investors do not outperform institutional investors in the market, especially those with a long-term investment perspective. Many retail investors base their stock investments on a long-term view, making it easier for them to accurately predict market movements. In contrast, institutional investors, needing to outperform their peers in the short term, tend to focus more on market timing and may overlook the long-term value of certain stocks. Anyone operating in the market with a long-term perspective can be considered "smart money," and this type of investor is more concentrated among retail investors.

Host: Many people think that companies like Palantir with triple-digit P/E ratios are too expensive. Under what circumstances do you believe that a triple-digit P/E ratio is still reasonable for long-term investors?

Tom Lee: I divide companies into two categories: the first category consists of companies that are not profitable but have a price-to-earnings ratio of 100 (about 40% of the 4,000 listed companies outside the main market), and most of these are bad investments.

The second circle consists of companies with N=1:

1. These companies are either laying the foundation for a huge long-term story and therefore not profitable now;

2. Either its founders are constantly creating new markets, making current profit streams unable to reflect its future.

Tesla and Palantir are examples. They deserve extremely high valuation multiples because you're discounting their future. If you insist on paying only 10x P/E for Tesla, you'll miss out on opportunities over the past seven or eight years. You need a different mindset to find these unique, founder-driven companies.

Lessons learned and final recommendations

Host: Many people say that this rebound is too concentrated in a few stocks, such as Nvidia, which is a huge sign of a bubble. Do you agree with this view?

Tom Lee: Artificial intelligence is a business that needs to scale , which means you need to invest huge sums of money. You and I can't create a product that can compete with OpenAI in a garage.

Scaling up industries is like energy or banking. There are only eight major oil companies in the world. If someone said oil is a cyclical business because only eight companies in the world buy oil, we would find that absurd. Because you have to be big enough to drill for oil. AI is the same; it's a business of scaling up. That's what the current market landscape shows. Do we expect Nvidia to deal with thousands of small companies? I'd rather they work with large companies that can deliver results and ensure financial viability. So, I think the current concentration is logical.

Host: Although you have been working in this industry for forty years, what is the most important lesson that the market has taught you personally over the past two years?

Tom Lee: The past two years have shown that "collective misinterpretation/misunderstanding" can persist for a long time . As we discussed at the beginning, many people firmly believe in a recession because of the inverted earnings curve, even though company data doesn't support it. They prefer to believe their own anchored beliefs. Companies therefore become more cautious and adjust their strategies, but profitability remains excellent. Often, when data conflicts with their views, people choose to believe their own beliefs rather than the data.

Fundstrat's bullish stance stems from our independent thinking; we anchor ourselves on earnings, and the earnings data ultimately proves everything. People call us "perpetual bulls," but earnings themselves have been "perpetually rising"—what more can I say? We simply follow a different set of data that ultimately drives stock prices.

It's important to distinguish between "conviction" and "stubbornness ." Stubbornness is believing you're smarter than the market; conviction is being steadfast in what is right. Remember, in front of a room full of geniuses, you can only ever achieve average results.

Host: Peter Lynch said, "The money lost waiting for a correction is more than the money lost during the correction itself." What's your opinion?

Tom Lee: There are a few masters of contrarian investing in the market, such as Peter Lynch, David Tepper, and Stan Druckenmiller, who excel at making decisive decisions when market sentiment is low. Take Nvidia as an example: when its stock price fell to $8, many people were too afraid to buy, and each subsequent 10% drop further exacerbated investor hesitation. Tom Lee believes that this emotionally driven stubbornness often stems from a lack of firm conviction rather than rational judgment.

Host: How do you explain the emotional rather than fundamental reactions that many investors exhibit when the market falls?

Tom Lee: This is a behavioral issue. The word "crisis" is composed of "danger" and "opportunity." Most people only focus on the danger during a crisis. When the market is falling, people only think about the risks to their portfolios, or think, "Oh my god, I must be missing something, because the good ideas I believe in should go up every day."

But in reality, they should see this as an opportunity, because the market always offers opportunities. The tariff crisis from February to April this year is a good example. Many people went to the other extreme, thinking we were about to face a recession, or that everything was over, but they only saw the danger, not the opportunity.

Furthermore, sentiment and political bias significantly impact market perception . Previous consumer sentiment surveys showed that 66% of respondents favored the Democratic Party, and these respondents reacted more negatively to the economy. The stock market, however, fails to recognize this difference in political affiliation. Companies and markets are independent of political views, and investors need to transcend sentiment and political bias. "Fan mentality" and self-esteem factors in investing can lead to decision-making biases; for example, investors may tend to bet on companies they prefer or feel a sense of confirmation when stocks rise and frustration when they fall. Even machines cannot completely eliminate bias because their design still retains human characteristics. To better cope with these influences, investors need to focus on supercycles and long-term trends, such as the missions of Nvidia or Palantir in the AI field, whose long-term potential remains unchanged even with short-term stock price fluctuations.

Host: Finally, if you had to describe the stock market over the next 12 months in one sentence, what would you say?

Tom Lee: I would say, "Fasten your seatbelt."

Because while the market has risen significantly over the past six years, we've also experienced four bear markets. This means we'll experience a bear market almost every year, which will test your resolve. So I think people need to be prepared because next year won't be any different. Remember, in 2025 we saw a 20% drop at some point, but ultimately ended up with a 20% gain for the year. So remember, this could very well happen again.

Host: Also, what advice do you have for newcomers who entered the market after 2023 and haven't seen a real major correction?

Tom Lee: First, it feels great when the market is rising, but there will be a very long and painful period ahead, and you'll question yourself. But it's precisely during that time that you need determination and conviction the most. Because you can make far more money investing at the bottom than trying to trade at the top.

Share to: