The energy in this room is outrageous. Anything you want to get off your chest before I start?
Couldn't have scripted a better time for you to be on the show. It's crazy. Can you feel this right now?
It's not always straightforward to translate those inputs into what the stock price is going to move.
100%. It's not binary. And that's my speech.
And then 6 months later, the market crashes. And then leave that aside.
I think we could stop paying taxes because the robots are the ones that are capped. And then what?
It's almost like asking me in 1996 whether or not we're going to be in a bubble in 2000.
If half the stocks can't even keep up with treasuries, there's something similar here.
This is the trick, I think, of investing that when you study history, like you understand all the risks, all the headline, like all the problems that can go wrong and your downside risk is well, what if they don't? buy this
I only like the beginnings of things. I like when a rally feels like it's in the face of challenges.
Very confident in my assertions. This just shows like kind of like the evolution of how an economy goes. I have had so many friends kill their careers buying new lows.
Pay attention because we will see this again. This is not like a one and done. This happens again and again and again. They'd be calling us and be like, 'What? What the's going on?'
The first go around here was the most fun I had.
I lived in silence for most of my career and you guys were the first place where I went and it's certainly been fun to be on the show with you guys. You're the best.
Put my mic on.
You're here to talk about stocks. GIVE YOURSELVES A ROUND OF APPLAUSE. Let's hear it.
This vacation, this is what I want to do on my vacation. You want to call stocks.
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So without further ado, let me hear you SCREAM FOR JOSH BROWN, MICHAEL.
All right, let's go. Good job, QUEEN. GIVE IT UP. LET'S HEAR IT. THE BOY IN FRONT.
WHAT I GOT?
All right, I got to tell you, you guys are literally the best podcast audience and fans in the world. Give yourselves one more round of applause. Thank you guys so much.
Thank you. I appreciate it. I'm working hard on the hair. All right. Uh you guys, for for those of you who don't know, this is one of, if not the top investing podcast in the world. Thanks to you, all of your efforts in sharing and liking and telling your friends and tuning in each week. And we love you for it. We are so lucky today to have two of the all-time great guests that we have ever had on the show. Repeat guests. The fans ask for them all the time. Every time they come on, the show does ridiculous numbers. Ladies and gentlemen, please say hello. Dan Ies is a partner and senior managing director at Yorkville Ives and Co. the merchant bank he co-founded in July with Yorkville Yorkville Securities which combines investment banking, equity research, institutional trading and principal investments with a focus on AI. Most of you know Dan from his prior eight years as global head of tech research at Wedbush. Give it up for Dan.
Celebrating the 12th anniversary today of the founding of Fundrat, we have Tom Lee, co-founder and head of research, chief investment officer at Fundstrat Capital, where he's also lead portfolio manager of the Granny Shots ETF suite. Welcome to Tom,
you guys. I'm super excited to be here with you all today. I think there are some major topics that have royd the let's call it the the the commentary layer of the markets and have worked their way into prices as well. The first place I want to start um we should definitely talk about the macro situation. We have a Fed meeting on on tap. The market is now convinced we'll get a 25 basis point rate hike based on uh the options market, a futures market at least. Uh in the interim, we've got the heads of some of the largest AI companies and the president of the United States in open disagreement about the danger or safety of this technology. It is one of the biggest capex waves in dollar terms, the biggest in the history of the United States. It seems like it's a pretty major macro moment. Tom, let's start with you. Um where do you think we stand? How should we be thinking about what's happening here?
Um, there is a wall of worry that you're describing and prices have reacted, especially the rate hike because obviously nobody likes a Fed to tighten. But I think this is setting up for a really bullish moment because we know pessimism is high and we know earnings are in good shape. And if the Fed delivers the hike, which you know is like a 90% probability, it probably takes out future hikes because the markets relieve the Fed's doing something. So I think the probability of a massive rally starting tomorrow is really high.
Tomorrow? Okay. So what time?
Tom I maybe 216 after Wars like says I hiked
I hiked on a hill you know
so Tom the bears have been chirping for a while as they do and I don't like to mock or poke because that's just karma asking for it so I don't like to do that but zooming out to where we are today these are all of the challenges that's been thrown at the market starting with the straight of Hermuz being closed and continuing to be closed with oil spiking That was supposed to be a black swan event. Equities looked past it as earnings uh expectations kept rising and delivering. Uh still tariffs, persistent inflation. Uh you had the AI/Situational awareness unwind, the 10-year at 5%, the Fed hiking, housing market is still shut down. Um and now Frontier AI models talking about the slowdown. Over the weekend, as you mentioned, Dan, people were expecting Armageddon. Well, guess what? Semis, which were I guess the only thing holding up the market, not true. But they're now in a 20% draw down, 19%. So, you got that. And yet, despite all of this and pessimism, the S&P is 2.6% off of its all-time high. How can this be viewed? How can this be viewed as anything other than incredibly bullish? Is am I wrong is the market bulletproof given all of those bullets that have been fired at it?
Yeah. I think what people forget is uh people tend to look at the stock market as oh it's up a lot from 5 years ago and a lot of people just bought it without thinking but they're not thinking about companies are using technology. They adapted to all those black swans and cut costs and this year earnings are up 25% and the market's only up 10. So the market got cheaper. And I think that's the perspective is that, you know, we're we're trusting our money with these CEOs that are proven that they're blue chip because they're not just sitting and telling the board everything's fine. They're like in crisis mode and cutting costs all the time.
Dan, your coverage universe has uh stocks in it that frankly have announced some of the most insanely profitable quarters in American history. Not just over the last three years, but just the last quarter alone, the superlatives don't even do justice to the magnitude of how much money companies are making. And yet, to Tom's point, valuations are actually contracting. What are you telling people that ask you about that?
Well, for the first time in 30 years, the US is way ahead of China when it comes to tech. And that's something in this AI revolution that and and we'll go into the anthropic issue in a second, but that is something that's still underestimated by investors. Demand to supply right now for chips is called 13 to 1.
When you start to demand, there's an order for there are 13 orders for every one chip that can be produced. And that's why a lot of times the bears from the 14th floor of the New York City office building talk about, you know, negative valuation. But when you see in Taiwan, you see in Korea like we do, what's actually happening, you don't you're not going to have true equilibrium probably till early 2029 at this pace. And for every dollar spent on capex, there's a five to $6 multiplier across the rest of tech. That's why look at software, look at infrastructure, look at cyber security. And it's just a very important moment that to point I think investors are underestimating earnings by probably 25 30% next few years. It sounds crazy to say we're underestimating earnings, but that actually has been the story of the last few quarters. The numbers are coming in so far ahead of what anyone expected. And it's not just happening in five or six companies. It's it's a phenomenon that I think most of the NASDAQ 100, a lot of the S&P 500 by market cap, how sustainable is that is the reason we're seeing contracting valuations because people look at it and say too hot, too good to be true. No way this can continue.
Well, I think memory stocks are kind of front and center there. If you look Micron I in terms of where these stocks are trading but ultimately quarter by quarter these companies are going to continue to prove out that this is we still believe this bull market's young. I mean, we're going to have a multi-year tech bull market ahead of us. And we'll go through white knuckle moments like this weekend or circular financing or whatever it may be, macro issues, oil, whatever you want. But it comes down to tech is going to lead this market higher because of where the spending is. You have 12 to,500 data centers that are going to be built next five to six years. Even if you assume politicalization 10% 15% get voted down that is just starting in terms of an innovation boom that's happening in this country.
Tom do you think it's as early as Dan seems to? Uh well, you know, you're never at a top when people want PE to be low and earnings are going up unless it's a true deep cyclical. And you know, the US economy is the opposite of a deep cyclical sector, right? Like we are kind of a low volatility economy now. So the multiple should be going up a lot.
Tom, I know that we are all very excited for the bull market to resume tomorrow.
But what do you think is the most legitimate the most credible bare case that you hear?
Uh well, I I think two things uh will kill a bull market. One is um a bonafide bubble. And a bubble could happen if um one day everyone says there's only one AI model we want to use and then like capex goes to zero. Um but the other is monetary policy intervention. The Fed 80% of the time is the reason a bull market ends. So I think if the Fed genuinely felt the economy was overheated and inflation pressures were unhinged and there was risk of a debt bubble they would you know pull the switch. So with that in mind we do have I wouldn't say record debt issuance but higher debt issuance than we've seen since the start of the buyback era which I guess started in 2012. So we we've had basically 15 years of companies um shrinking their float. Now of course we have the opposite selling stock to the public, massive IPOs where before there were almost none and crowding out treasury sales if you can believe that with tons of issuance um in in the bond market. Could that partially be that bare case starting to materialize or is that too pessimistic of you? Um, a a debt bubble takes place when there's quote return risk. Like the cost of money is so low that bad projects are getting funded. What we're seeing today is data center cost of money is going up. The market is already putting a break on everything. So we we we're not able to get to a debt bubble. And I would just say like when you say like the one of the biggest risks, it's the grandstanding politicalization that's happening on the data center side because every data center that gets voted down, China wins. There's no debate. And part of the problem is a lot of these politicians, many you know who I've met, like you don't want politicians that have flip phones and Blackberries determining your technology innovation in this country. And I think that to me is the thing that I'm most worried about relative to
you're wor you're worried about protests that spill over into canceled projects
because the reality is is that the jobs are going to be create in this innovation boom that we're having in in this country cuz for so much of my career like I'll be in Taiwan or fly landed you know you you'll see in Taiwan like 18 hours a day they're building fabs taking a a bathroom break after 14 hours and then I land in New York airport. There's a fist fight at the Dunkin Donuts and you're wondering why we're 17th in math and now you finally start to actually see the US is ahead of China when it comes tech. I don't want to see politicians with talking points and grant cut the knees off of tech in this innovation boom.
In what way are we ahead of China? I know um I know chat GPT got to 100 million users very fast and now of course it's a billion. I know Claude is somewhat neck and neck maybe stronger on the enterprise not as strong on consumer but fairly close. Gemini of course instant adoption because Google put it at the top of 12 of its products. That part I know, but I also know the Chinese have allowed these openweight models to proliferate. We could debate how openw weight they really are gi given, you know, Beijing's grip on the scene. I also know um BU is not sitting around eating glue and uh all you know, Tencent and all the Chinese players have their own entrance into the race. How do you definitively make the statement we are we are ahead? Are the models better or is the monetization further along? How would you explain that?
There's one, it's a great qu. There's one chip in the world fueling the AI revolution. That's Godfather of AI Jensen.
So, it's on the on the semiconductor.
And when you look on the semi, they're two to three years ahead of China. Their third rate chip is still probably a year ahead of where Huawei is just to keep in perspective. Then you look at from a hyperscaler perspective where Amazon, where Alphabet, where Microsoft is, it's not even in the same category what you see in terms of big tech in China. Then from an from a model perspective, anthropic and open AI, you can't even compare those models to where we are in China from an open source perspective, whether it's Deep Seek or others. China's ahead of us when it comes to robotics and energy. But the problem is that if you don't sell chips into China and Jensen knows as well, who ultimately starts to narrow the gap? China. If you slow down model development, you know, again on the like this weekend anthropic open AI, who wins? It's China because they're not slowing down.
So I want to pick that up, Tom, and come to you as a portfolio manager, a CIO, an investor. I guess it was on Saturday out of the right right during college football like like literally right in the middle of perfect timing. So everyone's minding their own business watching college football barbecuing at the beach and Dario Amade founder of uh Anthropic drops a blog post basically saying there is an emergency. I have seen things in my own labs that I am worried about. I've seen things happen at other labs that I'm worried about. And what we need to do as a society is immediately take steps to introduce outside observers into my company and other frontier labs. And we need to slow down this break neck pace of development because if we don't, something's going to break. Super agents will hack us, etc. So immediately he earns the support of half the people listening because they already think that. The other half of the people, I won't say who, seem to have the attitude, look, if we're all going to die, god damn it, we're going to die from American AI. None of that commie crap. I want to be killed by the USNA AI. So the other half says it's a hoax. Ignore it. Don't worry about it. How do how do you react to that when you hear that news?
Uh it's overdue actually because you know every industry that grows always grows ahead of regulation. You know there's this notion of SRO self-regulatory organizations and AI has zero today. Um and it's coming at a time when like communities are protesting AI. There's like 38 anti-AII groups and there's like moratoriums on data centers. So to me it's smart to say let's self-regulate one and now we're acknowledging that we got issues so we can talk to the communities. It it's not any different than wireless when remember 5G and people talked about the power emitted by phones.
They tried to ban the uh cell towers and there was federal legislation eventually correct that stopped that argument.
That's right. And when I was covering wireless, you know, phones used to transmit at one watt. Now it's 25 mill because they were like, you're going to get brain cancer. Imagine if like the FDA shut down the cellular industry because they didn't cut power. It's not that different than sort of limiting AI.
We have multiple We have multiple political battles over AI. One of them is resource use. Obviously, there's a lot of water, a lot of electricity. Um, I know there's all sorts of arguments about why it matters, why it doesn't, but that's one vector. Another vector is some of the founders of the largest AI companies have been a little bit loose uh getting in front of podcast mics making statements like 50% of all white collar jobs will disappear by 2030. Um, and they walk them back eventually or they moderate their tone, but people don't unhear things. Okay, so that's one vector, the job loss. And then the third, of course, is just this idea of a massive hack that could, you know, the next 1929 stock market crash or planes falling from the sky. Things that we heard during the Y2K panic. Um, it's the combined force of all of those that I that I think makes it so that you're probably right. It's long overdue that the industry didn't have some sort of response. But you seem to think the response is non-genuine, meaning they're saying, 'Okay, we need to calm down.' Almost as though they're preempting other people from saying it.
Yeah. Like, think of it as it's 800 billion a year is the capex and it's going to go to 1.1. I don't think it's going to go to 400. It's really their want people to buy into this idea of like if I keep spending 800 billion a year, we can help the community. And by the way, like we understand all your fears. I I think it's a very smart move. And of course, as you know, uh every CEO knows today they can they make public statements to influence politicians and voters, not just shareholders.
Look, I mean, part of it is like we you needed to have a step in the right direction on safety. No one no one denies that. But the reality is Daario himself and a lot of these tech companies like they created this PR nightmare themselves. If you tell the American public you're going to lose your jobs to 50% white collar or whatever the and then electricity bills are going to go higher. They're not having celebrations when they build data centers in your backyard. You don't have to be Stephen Hawkins to figure that out. And part of the problem is is that some of it is like when you get to the penthouse then you stop the elevator so others can't come up. So there is a regulatory capture piece and that's why it comes down to like Meta. You think they're slowing down? Look at how software stocks are performing because everyone recognizes anthropic open AI they've had a huge lead. If you slow up who do you think win? Software companies will narrow the gap. And I think Tom brings up great points, but you also have to separate between China's not slowing down. See, this is the reality.
Yeah. Actually, to China like
Well, yeah, to Dan's point, there is a probably a big element of SCOP like where all this anti-data center stuff might just be China influencing public opinion here.
But if you this is if the US slows down, China wins there. There's not even a debate on that. And that's why I just believe like this weekend you saw everyone back and forth go it's a it's a huge debate. But the reality is and I think Jensen had great commentary, Nadell had great commentary because I think what they're basically saying which is true and George from Crowd Strike as well like you can't put the genie back in the bottle. The innovation boom is happening and at this point you don't want politicians to basically put a halt on innovation because that would be the best ever happened to Beijing.
But what how does what does China winning mean exactly? What do they mean?
It means on chips, on models, on infrastructure, on robotic all the technology that's going to be built in AI. If you slow down, they accelerate with with Beijing putting gasoline into that. They're not slowing down at all. And that's why right now the reality is is that I understand what Dario did, but I think there's a there's unintended consequences about what he talked about. And then the average American consumer gets scared some sci-fi movie, the robots are going to attack me.
Well, yeah. But also like Dan's got a good point in China winning because remember people rely on like recursive loops. Uh China controlling these models will make these recursive loops will like make you dumb you know like or they'll like lead you to wrong conclusions like it's a kind of mind control. So I think it's important.
You guys have a view on the timing. So, personally, I don't think it's coincidental that Mark Zuckerberg dropped Muse as a free-to-use openweight model on I guess it was Thursday or Friday and within two days there was this emergency. Whoa, whoa, whoa, we need to slow down. Is that too much of a conspiracy theory or do you guys think there's something to it?
I think it's there's something to that concept along with just rising competition. the anthropic researcher who was there for five weeks or six weeks you know obviously everything that that created but the reality is that this is not just anthropic open AI and everyone else every other it's the startups it's the big tech companies that are going to narrow the gap and that's why this is not controlled by Daario and Anthropic and I think that would that message was loud and clear from Jensen
do you think that we're going to be talking about this a month from now Or are we going to be like, 'Hey, remember when they said they were going to slow down? That was stupid.'
You're like, 'Was that before the IPO or after they announced?'
What do you think?
I think you're going to talk about it. It will be You'll hear it non-stop going into the midterm, especially the political debate cuz it goes right into the big debate we're going to see in data centers. But the reality is is that it's words versus action. And when you spend time in the beltway and we both have, you come out of there being like these are not people that I want controlling our innovation and I think that's the biggest risk that it that regulatory and the politics starts to
do. Do either of you think there's a high likelihood of legislation even being proposed to tackle this issue between now and the end of the year? Or are they too busy still trying to pass the Clarity Act uh which was first proposed three years ago um uh for Donald Trump's second term? Like what how long does this sort of thing take to work itself through the pipeline?
Yeah. I mean, can you imagine the bill? It's like, hey, AI can't be that good. Like, that's the law. Like, you know what I mean?
So, I think it's going to be tough. Um,
I I don't know. I mean, I think it's smart to debate all these things, but as you know, it's like regulators understand they're behind. I think it's just it's going to have to be self-regulated like, and that's what they're proposing, right? We evaluate
each other's model. They don't want the government sitting in the middle of that.
Well, time out. John Tom made a very important point there about the self-regulation versus... well immediately following the publishing of that op-ed to your point Sam Alman came out on X and basically said yeah we agree we'll do the same thing and then Elon Musk like I think he put a heart on it so those are the three frontier models is there a fourth beyond uh deep mind Gemini.
But the reality is in Karp talks about all the time Palantir it's sovereign AI because the biggest risk to the models is sovereign AI. I'm going to control my data. I'm not going to have the models access. That's why like Nvidia, Palantir, many others talk about sovereign AI that continues to be the big debate versus the M because more and more.
Because you're going to have hundreds of models like when we're here at future proof and probably it goes all the way down to Newport by then like we're like we're you're going to have hundreds of models. The models will eventually become commoditized. Sovereign AI is basically sovereign data is that I'm gonna have control on my data as a company. I'm not just going to let the model companies get that access because then you could argue there's risk ultimately to your business model depending on where that goes.
So corporations will train their own model with their own data that is not available to other models and that's a risk to the general AI.
And they'll try to corrupt public data, right? I mean competition is make public data less trustworthy.
Exactly.
So Elon Musk is is not exactly known for being a scaredy-cat. What do you think his motivation is in saying, 'Yeah, we actually do need to slow down'.
Because the reality is that Musk knows from a model perspective, they're way behind anthropic and open AI, right? So they need to slow down so he can catch up. Cool. Look, this is like one of those things where yeah, there's like Musk has talked about the concept of safety and he he's been consistent with that, but the reality is anthropic and open AI are so far ahead, no one could really catch them unless there's a regulatory capture type of moment. And that speaks to m and that's part of the issue is that like on the weekend when that happened and everyone's like, 'Oh, it's gonna be a black Monday, you know, like black Monday stocks are going to crush this.' semis did.
But but the reality is like we're going to look out two a month from now and I I view these as opportunities relative to the stock selling off on this moment.
So semis are down 19% from their high. Nvidia just keeps reporting miraculous quarter after another and the stock cannot really get out of the mud. What is it going to take for investors to get excited about these stocks again? Tom, are we gonna see new all-time highs for the semis in 2026?
Yeah, I I think um you know if if one wanted to think about Nvidia and its model evolving and it has a low PE that that was Apple's story, right? Because remember no one gave him credit for the app store and the fact that they controlled basically all the real estate and then one day Apple's multiple doubled. I I think it is uh you anyone who owns Nvidia should take comfort. I mean, you're paying 16 times and you're paying, you know, 50 times to buy Costco and 48 time to buy Walmart and it and the market is going to flip it someday because, you know, if Nvidia charged a member membership fee, the multiple would go to 50, right? You know.
That doesn't scare you at all that the market is discounting it so much. You think the market has it wrong?
Uh it but there's a whole history of stocks that get rerated uh because it's reluctance like many people have not made money in AI. You know I talked to fund managers that have underweight or zero exposure to AI because they thought it was a bubble but like it's it's very difficult to say this is a bubble because it's a structural story.
Bears have called 10 of the last two downturns.
So this would be that. So I think the institutional world still has a lot more room to buy more AI and and to buy IPOs and so I and I and it's then it's add family offices. I mean anthropic and open are creating wealth but it's a narrow number of people that actually invested in that.
I want to pivot to one of the bigger stories from earlier this year that had a pretty surprising outcome. All four of us were at future proof citywide in Miami, which is almost exactly six months ago. And at that time in March, the biggest story in the stock market was the SAS apocalypse. Some of the largest publicly traded companies in America, including Salesforce, Microsoft, virtually every software company you could think of, were in draw downs that were anywhere between 20 and 60%.
I should add not one of them had missed a earnings quarter or had anything fundamental happen to their business. I have never seen such a sudden sentiment derisking in a group as large as these stocks were. Now we're 6 months past that. Um and it looks like the market has realized, oh wait a minute, we may have gone overboard. Um, I would love to hear just an update on how you guys feel about that idea that the LLMs are basically going to displace some of the most important publicly traded companies in the world.
I would say and I tal like at the time like in my whole career it's the most headscratching I've ever seen because the narrative... you said that in real time because the narrative it was a false fictional tw narrative that was a a bad fairy tale because anyone that talked to any CIO or any user and understanding where the models were going I'm not saying that like an Adobe and an into it that they don't have structural issues because AI but the view that it was going to wipe out Service Now it was going to wipe out Salesforce Palantir Anthropic was going to eat their lunch that was almost like bad comedy the concept of it and I think it just shows in this market narratives create the opportunities go back to like anyone that was at RSA security conference cyber security like that was like in April anthropic releases right around Then like, okay, cyber security, we're putting out a solution. Stocks are getting crushed. I'm with George from CrowdStrike. Everyone's like, the space is done, dude. There might not even be an RSA security conference next year. Now look at Crowdstrike. I I'm just saying like narratives create the opportunity.
The three largest cyber security stocks, Crowdstrike, Fortnite, PaloAlto are all up 100% plus on the year. So that didn't that didn't take long. Yeah. for that narrative to take root and then just be completely uprooted.
