Tom Lee's Latest Interview: Bull Market Far From Over, ETH to Reach $12,000 Next Year

Original Title: Tom Lee: The Biggest Market Shake-Up Is Coming

Original Author: Fundstrat

Original Translation: Yuliya, PANews

In an era where most analysts are cautious or even pessimistic about the market, Tom Lee, Chairman of BitMine and senior strategist, has struck a decidedly bullish tone. In a recent interview with Fundstrat, Tom Lee delved into the current macro cycle, AI supercycle, market sentiment shifts, inflation risks, and the future trends of crypto assets. Tom Lee believes that the market is at a crucial juncture of a "supercycle," and investors' misinterpretation of macro signals, yield curve, inflation logic, and the AI industry cycle is leading to systemic misalignment. He not only made a year-end prediction for the U.S. stock market of 7000 to 7500 points but also pointed out that Ethereum and Bitcoin are poised for a strong rebound. PANews has compiled and translated the text of this interview.

We Are in a Misunderstood "Supercycle"

Host: Tom, welcome. Let's first look back. In the past three years, the market has risen by over 80%. Yet, you have been one of the few voices insisting on a bullish view. In your opinion, from 2023 to 2024, and even up to this year, where did the 90% of analysts and bears go wrong?

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

· Firstly, they excessively believed in the "scientificity" of the yield curve. When the yield curve inverted, everyone thought it was a signal of an economic recession. However, we at Fundstrat have explained that this inversion was due to inflation expectations – short-term inflation is high, so short-term nominal interest rates should be higher, but in the long term, they will decrease, which is the reason for the curve inversion.

· 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 tricky conditions present today that would cause that sustained inflation.

Therefore, people are structurally bearish, believing that "yield curve inversion signals a recession, stagflation is imminent." They completely miss the fact that businesses are adjusting their business models in real time and dynamically to address inflation and Fed tightening, ultimately delivering outstanding earnings. In the stock market, time is the best friend of great companies and the worst enemy of mediocre companies, whether in an inflationary period or a bull market; this is the truth.

Host: I noticed that you believe the current market environment is somewhat similar to that of 2022, when almost everyone was turning bearish, and now, as the market is once again experiencing anxiety, you are once again taking a bullish stance. What do you think is the biggest misconception people have about the current market landscape?

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

· Millennials: They are entering the prime working age, setting the stage for a robust tailwind for the next 20 years.

· Global Golden Age Labor Shortage: This may sound mundane, but it is this factor that lays the foundation for the prosperity of artificial intelligence (AI).

Why is the AI Boom Fundamentally Different from the Dot-Com Bubble?

Tom Lee: We are currently in a prosperity driven by AI, leading to continuously rising asset prices. This is actually a textbook case: from 1991 to 1999, there was a labor shortage, and tech stocks prospered; from 1948 to 1967, again, there was a labor shortage, and tech stocks also saw prosperity. Today, the AI wave is replaying this pattern.

However, the issue is that many people see high Sharpe ratio stocks as a bubble and try to short companies like Nvidia, but this perspective may be off. They forget that today's AI industry is completely different from the 1990s internet. Back then, the internet was merely a "capital expenditure frenzy," while AI is "gain of function."

Host: Many people have likened the current AI craze to the late 90s Internet bubble, and even compared Nvidia to the Cisco of that era. You have personally experienced that time, what do you think is the fundamental difference between the two?

Tom Lee: This comparison is very interesting, but it has a fundamental flaw. The lifecycles of telecom capital expenditure (Cisco) and GPUs (Nvidia) are completely different.

People forget that in the late 90s, the core of the capital expenditure boom was the telecom industry - laying fiber optics, not the Internet itself. The telecom spending in emerging markets was tied to GDP growth at that time, and this frenzy spread to the US, leading to companies like Quest frantically laying fiber optics along railways and under streets, and Global Crossing laying submarine cables globally. The problem was that the demand of the Internet for these fiber optics could not keep up with the speed of their deployment, at its peak, nearly 99% of the fiber optics were idle "dark fiber".

Today's situation is completely different. The market demand for Nvidia chips remains strong, with the usage of its GPUs almost reaching 100%, ready to use, fully meeting market demand. The supply of Nvidia chips falls far short of the demand, even if the capacity were increased by 50%, all chips would still be quickly sold out. The current industry faces three major constraints: Nvidia chip supply, related silicon materials, and energy supply. These factors collectively limit the pace of market expansion. At the same time, the pace of functional improvement of AI technology has far exceeded expectations, further intensifying the demand for hardware. However, capital expenditure has not kept pace with this trend, and the industry as a whole is still in a state of undersupply. In other words, AI capital expenditure still "lags behind the innovation process".

Year-End Market Prediction and the Potential of Cryptocurrency

Host: You have mentioned multiple times that the S&P 500 index could reach 7000 or even 7500 points by the end of the year. In your bullish year-end market outlook, which sector do you think will surprise people the most?

Tom Lee: Firstly, market sentiment has become quite pessimistic in recent weeks. The temporary government shutdown has drained funds from the economy and the Treasury has not disbursed funds, leading to liquidity contraction and market volatility. Whenever the S&P 500 index drops by 2-3%, or AI stocks fall by 5%, people become very cautious. I believe that the bullish sentiment is very shaky, and everyone always feels like the market top is near. But I want to emphasize one point: When everyone thinks the top is coming, the top is impossible to form. The reason the Internet bubble's top formed was because no one thought stocks would fall back then.

Secondly, you must remember that although the market has performed strongly in the past six months, people's positions are significantly skewed, indicating a huge potential demand for stocks. In April of this year, many economists claimed that a recession was imminent due to tariff issues, leading institutional investors to trade in preparation for a massive bear market. Such misplaced positions cannot be adjusted in just six months.

Now, as we enter the year-end, 80% of institutional fund managers are underperforming the benchmark index, marking the worst performance in 30 years. They have only 10 weeks left to catch up, meaning they will have to buy stocks.

Therefore, I believe several things will happen by the year-end:

· AI Trading Will Make a Strong Comeback: Despite recent fluctuations, AI's long-term outlook remains unaffected, and it is expected that companies will make significant announcements looking ahead to 2026.

· Financial Stocks and Small-Cap Stocks: If the Fed cuts rates in December, confirming its entry into an easing cycle, this will greatly benefit financial stocks and small-cap stocks.

· Cryptocurrency: Cryptocurrency is highly correlated with tech stocks, financial stocks, and small-cap stocks. Therefore, I believe we will also see a massive cryptocurrency rebound.

Host: Since you mentioned cryptocurrency, what do you think the price of Bitcoin will reach by the year-end?

Tom Lee: Expectations for Bitcoin have somewhat diminished, partly because it has been consolidating sideways and some early Bitcoin holders (OGs) have been selling off above $100,000. But it remains a significantly under-allocated asset class. I believe that by year-end, Bitcoin has the potential to reach a high in the tens of thousands of dollars, possibly even $200,000.

For me, however, it is more apparent that Ethereum may see a significant surge by the year-end. Even "WoodSis" Cathie Wood wrote that stablecoins and tokenized gold are eroding demand for Bitcoin. Both stablecoins and tokenized gold operate on smart contract blockchains like Ethereum. Moreover, Wall Street is actively positioning itself, with BlackRock's CEO Larry Fink hoping for everything to be tokenized on the blockchain. This suggests growing expectations for Ethereum's growth. Our Head of Technical Strategy, Mark Newton, believes that by January next year, the price of Ethereum could reach $9,000 to $12,000. I think this prediction is reasonable, indicating that Ethereum's price will more than double from now until the year-end or January next year.

Overestimated Inflation and Manageable Geopolitical Risks

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

Tom Lee: Yes, I believe so. Over the past three years, the S&P 500 has seen double-digit gains for three consecutive years, and this year it may even exceed 20%. By the end of 2022, almost no one was bullish. At that time, the wealthy and hedge funds advised clients to move to cash or alternative assets—private equity, private credit, venture capital—and the performance of these asset classes was all crushed by the S&P. This "mismatch" is now backfiring on institutions.

Therefore, 2026 should not be seen as a bear market year. Instead, investors will once again chase high-growth stocks like Nvidia, as their earnings are still growing at over 50%.

At the same time, the crypto market will also benefit. Although the market generally believes that the Bitcoin four-year cycle is coming to an end and should enter a correction, this judgment overlooks the macro environment. But they forget that the Fed is about to start cutting rates. Our research has found that the correlation between the ISM Manufacturing Index and the price of Bitcoin is even higher than monetary policy. Bitcoin is unlikely to peak before the ISM index reaches 60.

Currently, the cryptocurrency market is constrained by inadequate liquidity, with the Fed's quantitative tightening (QT) expected to end in December but has not clearly signaled easing, leaving investors confused. However, as these macro factors gradually become clearer, the cryptocurrency market is expected to see more positive performance.

Host: In your view, what is the most overestimated risk in the current market?

Tom Lee: I believe the most overestimated risk is the "return of inflation." Too many people believe that monetary easing or GDP growth will create inflation, but inflation is a mysterious thing. We have experienced years of loose monetary policy without inflation. Now, the labor market is cooling, and the housing market is weakening, with none of the three major drivers of inflation—housing, labor costs, and commodities—rising. I even heard a Fed official say that core service sector inflation is rising, which we found to be completely wrong upon verification. Core PCE service sector inflation is currently running at 3.2%, below the long-term average of 3.6%. Therefore, the view that inflation is strengthening is incorrect.

Host: If an unexpected event occurs, such as geopolitical instability, war, or a supply chain issue causing a surge in oil prices, would this be a variable that would make you bearish?

Tom Lee: Indeed, that possibility exists. If the price of oil rises high enough to cause an impact. Looking back at the three past non-Fed induced economic shocks, they were all commodity price shocks. But for oil to become a substantial burden on households, its price needs to reach a very high level. In recent years, the energy intensity of the economy has actually decreased.

So, oil prices would need to approach $200 to cause such an impact. A price of $100 for oil, we have been close to before, but it did not cause an impact. You really need oil prices to triple. This summer, the U.S. bombed Iran's nuclear facilities, and some predicted that this would cause oil prices to soar to $200, but the result was that oil prices hardly fluctuated.

Host: Yes, geopolitics has never long-term dragged down the U.S. economy or the U.S. stock market. We have had localized impacts, but never has geopolitics led to a true economic recession or a large-scale stock market disaster in the United States.

Tom Lee: Exactly right. Geopolitics can devastate an unstable economy. But in the U.S., the key question is: Will company profits collapse due to geopolitical tensions? If not, then we should not consider geopolitics as a primary reason for predicting a bear market.

How to Overcome Fear and Greed

Host: If Fed Chair Powell unexpectedly did not cut rates in December, how would the market react?

Tom Lee: In the short term, this would be negative news. However, while Chair Powell has done a good job, he is not popular in the current administration. If he does not cut rates in December, the White House may accelerate its plan to replace the Fed Chair. Once replaced, there may be a "shadow Fed," and this new "shadow Fed" will establish its own monetary policy. Therefore, I believe the negative impact will not be prolonged because the new chair may not need to be constrained by various voices within the Fed, and the execution of monetary policy may undergo a transformation.

Host: I have many friends who have been holding cash since 2022 and are now very conflicted, both fearing that the market is too high and fearing missing out further. What is your advice for this dilemma?

Tom Lee: This is a very good question because many people face this dilemma. When an investor sells a stock, they actually need to make two decisions: one is to sell, and the other is when to re-enter the market at a better price. If they cannot ensure a tactical re-entry into the market, panic selling may lead to missing out on long-term compounding gains. Investors should avoid panic selling stocks due to market fluctuations; each market crisis is actually an investment opportunity rather than a signal to sell.

Secondly, for investors who have missed out on market opportunities, it is recommended to gradually re-enter the market using the "dollar-cost averaging" strategy instead of a lump-sum investment. It is suggested to divide the investment over 12 months or a longer period, investing a fixed percentage of funds each month. This way, even in the event of a market downturn, better cost averaging can be achieved through staggered purchases. One should not wait to re-enter the market after a market correction, as many investors hold similar views, which may lead to further missed opportunities.

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

Tom Lee: I would like to correct a common misconception; the performance of retail investors in the market is not inferior to that of institutional investors, especially those individuals with a long-term investment perspective. Many retail investors base their stock investments on a long-term view, making it easier for them to correctly gauge market trends. In contrast, institutional investors, needing to outperform peers in the short term, often tend to focus on market timing, possibly overlooking the long-term value of certain stocks. Anyone operating in the market with a long-term perspective can be considered "smart money," and these types of investors are more prevalent within the retail investor group.

Host: For companies like Palantir with triple-digit P/E ratios, many consider them to be overvalued. In what scenarios do you think a triple-digit P/E ratio is still reasonable for a long-term investor?

Tom Lee: I categorize companies into two groups: the first group consists of companies that do not make money but have a 100x P/E ratio (making up about 40% of the over 4,000 listed companies), and most of these are generally poor investments.

The second group is what I call N=1 companies:

1. These companies are either laying the groundwork for a massive long-term story, hence not profitable at the moment;

2. or their founders are continuously creating new markets, rendering their current profit flows unable to reflect their future potential.

Tesla and Palantir are examples. They should enjoy a very high valuation multiple because you are discounting their future. If you insist on only paying 10 times earnings for Tesla, you will miss the opportunity of the last seven or eight years. You need to think differently to find these unique, founder-driven companies.

Lessons Learned and Final Advice

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 scalable business, meaning you need to invest a huge amount of capital. You and I cannot create a product that can compete with OpenAI in a garage.

A scalable industry is like the energy or banking sector. There are only eight major oil companies in the world. If someone were to say that oil is a cyclical business because only eight companies in the world buy oil, we would find that absurd. Because you have to be large enough to drill for oil. AI is the same; it is a scalable business. This is what the current market structure shows. Do we want Nvidia to deal with thousands of small companies? I would rather see them collaborate with large companies that can deliver results and ensure financial viability. So, I think the current concentration phenomenon is logical.

Host: Despite having worked in this industry for forty years, what has been the most important lesson that the past two years of the market have taught you personally?

Tom Lee: The past two years have shown that the public's "collective misinterpretation" can last a long time, as we discussed at the beginning, many people firmly believed in a recession due to the inverted yield curve, although company data did not support it, but they were more inclined to believe in their anchored beliefs. Companies have become cautious and adjusted their strategies accordingly, yet profitability remains excellent. Often, when people's views conflict with the data, they choose to believe in themselves rather than the data.

What allows Fundstrat to remain bullish is that we do not stick to our views; we anchor to profitability, and profit data ultimately proves everything. People call us "permanent bulls," but profits themselves have been "permanently rising," what else can I say? We are just following a different set of data that ultimately can drive stock prices.

It's important to differentiate between "conviction" and "stubbornness." Stubbornness is thinking you are smarter than the market; conviction is being firm based on the right things. Remember that in a room full of geniuses, you can only achieve an average level.

Host: Peter Lynch said, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves." What are your thoughts on this?

Tom Lee: There are a few contrarian masters in the market, such as Peter Lynch, David Tepper, and Stan Druckenmiller, who are adept at making decisive decisions when market sentiment is low. Take Nvidia, for example. When its stock price dropped to $8, many people were too afraid to buy, and each subsequent 10% drop only exacerbated investors' hesitation. Tom Lee believes that this emotional hesitance is often rooted in a lack of conviction rather than rational judgment.

Host: How do you explain the emotional rather than fundamentally driven reactions that many investors display during market downturns?

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

But in reality, they should see this as an opportunity because the market will always give you a chance. The period from February to April this year during the tariff crisis is a good example. Many people went to the other extreme, thinking we were heading into a recession, or that everything was over, but they only saw the danger and not the opportunity.

Furthermore, emotions and political biases significantly influence market views, as shown in a recent consumer sentiment survey where 66% of respondents leaned toward the Democratic Party, resulting in more negative economic reactions, and the stock market cannot discern this political allegiance difference. Companies and the market itself are independent of political views, and investors need to move beyond emotions and political biases. A "sports fan mentality" and ego factors in investment decisions can lead to biases, such as investors' inclination to bet on their favorite companies or seeking validation when stocks rise and feeling frustrated when they fall. Even machines cannot completely eliminate biases because their design still carries human traits. To better address these influences, investors need to focus on supercycles and long-term trends, such as Nvidia in the AI field or Palantir's mission, where short-term stock price fluctuations do not alter their long-term potential.

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

Tom Lee: I would say, "Buckle up."

Because over the past six years, although the market has seen significant gains, we have experienced four bear markets. This means we almost face a bear market every year, testing your resolve. So I think people need to be prepared because next year is not going to be any different. Remember, in 2025, at some point, we were down 20%, but by the end of the year, we might be up 20%. So keep in mind that this scenario is very likely to happen again.

Host: Additionally, for newcomers who entered the market after 2023 and have not experienced a significant pullback, what advice do you have?

Tom Lee: First of all, it feels great when the market is going up, but there will be a very long period of pain in the future, where you will question yourself. However, it is precisely at that time when you need the most determination and conviction. Because the money you make investing at the bottom is far, far greater than trying to trade at the top.