Interview with Tom Lee, the 'Oracle of Wall Street': Market Volatility Persists but the Bull Run Is Far from Over; Ethereum to Reach $12,000 by January Next Year

We are in the midst of a misunderstood 'supercycle'

Host: Tom, welcome. Let’s first look back. Over the past three years, the market has risen by more than 80%. And you have been one of the few consistently bullish voices. In your view, what exactly did the 90% of analysts and bears get wrong from 2023 to 2024 and into this year?

Tom Lee: 80% of trading essentially hinges on the macro environment. Over the past three years, investors have almost all considered themselves 'macro traders,' but they’ve made two critical mistakes.

• First, they have placed too much faith in the 'scientific' nature of the yield curve. When the yield curve inverted, everyone interpreted it as a signal of recession. But at Fundstrat, we explained that this inversion was due to inflation expectations—short-term inflation was high, so nominal short-term rates should be higher, but would decline in the long term, which is why the curve inverted.

• Second, our generation has never truly experienced inflation, so everyone used the 'stagflation' of the 1970s as a template, without realizing that today we lack the tricky conditions that caused such persistent inflation.

As a result, people are structurally bearish, believing that 'an inverted curve means recession, and stagflation is imminent.' They completely missed how companies were adjusting their business models in real-time and dynamically to respond to inflation and Fed tightening policies, ultimately delivering excellent earnings. In the stock market, time is the best friend of great companies and the worst enemy of mediocre ones, whether in periods of inflation or bull markets—this remains true.

Host: I noticed that you believe the current market environment bears some resemblance to 2022, when almost everyone turned bearish. Now, as anxiety returns to the market, you once again take a bullish stance. What do you think is the biggest misconception people have about the current market landscape?

Tom Lee: I think what people find hardest to understand and grasp is the concept of the 'super cycle.' In 2009, we turned structurally bullish because our cyclical research indicated that a long-term bull market was beginning. By 2018, we identified two emerging super cycles:

• Millennials: They are entering their prime working years, which will be a powerful tailwind for the next 20 years.

• Global shortage of workers in their prime 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 the AI boom fundamentally different from the dot-com bubble?

Tom Lee: We are in the midst of an AI-driven boom, which has led to rising asset prices. This is actually a textbook case: from 1991 to 1999, there was a labor shortage, and tech stocks boomed; similarly, from 1948 to 1967, another period of labor shortage saw a flourishing of tech stocks. Today’s AI wave is repeating this pattern.

The problem, however, is that many people view stocks with high Sharpe ratios as bubbles and attempt to short companies such as $NVIDIA (NVDA.US)$They seem to forget that today's AI industry is fundamentally different from the internet of the 1990s. Back then, the internet was merely a 'capital expenditure frenzy,' whereas AI represents a 'gain of function.'

Host: Many are comparing the current AI boom to the dot-com bubble of the late 1990s, even likening NVIDIA to what Cisco was back then. Having personally experienced that era, how do you see the fundamental differences between the two?$Cisco (CSCO.US)$(Cisco) from that era. Having personally experienced those times, what do you think are the fundamental differences between the two?

Tom Lee: This comparison is intriguing but fundamentally flawed. The life cycles of telecom capital expenditure (Cisco) and GPUs (NVIDIA) are entirely different.

People forget that at the heart of the capital expenditure boom in the late 1990s was the telecommunications industry—laying fiber optic cables, not the internet itself. At that time, emerging markets tied their telecom spending to GDP growth, and this boom spread to the U.S., leading companies like Quest to lay fiber along railways and streets, while Global Crossing laid submarine cables worldwide. The problem was that the internet’s consumption of this fiber could not keep up with its deployment pace. At its peak, nearly 99% of the fiber remained unused 'dark fiber.'

However, the situation today is entirely the opposite. The market demand for NVIDIA chips remains robust, with their GPU utilization currently nearing 100%, providing immediate availability that fully meets market needs. The supply of NVIDIA chips falls far short of demand; even if production capacity were to increase by 50%, all chips would still be sold out instantly. The industry currently faces three major constraints: the supply of NVIDIA chips, related silicon materials, and energy resources. These factors collectively limit the pace of market expansion. Meanwhile, advancements in AI technology are outpacing expectations, further intensifying demand for hardware. However, capital expenditures have yet to catch up with this trend, leaving the industry in a state of insufficient supply overall. In other words, AI-related capital spending is still 'lagging behind the pace of innovation.'

Year-End Market Outlook and the Potential of Cryptocurrencies

Host: You have mentioned multiple times that,$S&P 500 Index (.SPX.US)$by the end of the year, it may reach 7,000 or even 7,500 points. Among the year-end market trends you are optimistic about, which sector do you believe will bring the biggest surprise to people?

Tom Lee: First, market sentiment has turned quite pessimistic over the past few weeks. The temporary government shutdown withdrew liquidity from the economy, and without disbursements from the Treasury, liquidity contracted, causing volatility in the stock market. Whenever the S&P 500 drops by 2-3%, or AI stocks fall by 5%, people become extremely cautious. I believe the foundation for bullish sentiment is very fragile, as everyone feels the market peak is imminent. But I want to emphasize: when everyone thinks the top is near, it cannot possibly form. The peak of the dot-com bubble occurred precisely because no one believed stocks would fall.

Secondly, you must remember that while the market has performed strongly over the past six months, investors' portfolios are severely misaligned, indicating enormous latent demand for equities. In April this year, due to tariff concerns, many economists predicted an impending recession, and institutional investors positioned themselves accordingly, essentially preparing for a significant bear market. Such positioning errors cannot be corrected within just six months.

Now, heading into the year-end, 80% of institutional fund managers are underperforming their benchmark indices, marking the worst performance in 30 years. With only 10 weeks left to catch up, they will inevitably have to buy stocks.

Therefore, I believe several developments will occur before the year-end:

• AI trading will make a strong comeback: despite recent uncertainties, the long-term outlook for AI remains unaffected, with companies expected to make significant announcements as they look toward 2026.

• Financials and small-cap stocks: If the Fed cuts interest rates in December, confirming its entry into an easing cycle, this would be highly beneficial for financials and small-cap stocks.

• Cryptocurrencies: Cryptocurrencies are highly correlated with tech stocks, financials, and small caps. Therefore, I believe we will also see a major cryptocurrency rebound.

Host: Since you mentioned cryptocurrencies, what level do you think$Bitcoin (BTC.CC)$it will reach by the end of the year?

Tom Lee: Expectations for Bitcoin have moderated somewhat, partly because it has been consolidating, and some early Bitcoin holders (OGs) sold when the price surpassed $100,000. However, it remains a significantly under-allocated asset class. I believe Bitcoin has the potential to reach the high six figures by the end of the year, possibly even reaching $200,000.

But for me, it is more obvious that$Ethereum (ETH.CC)$there could be a significant surge before the end of the year. Even Cathie Wood, also known as 'Wood', has written that stablecoins and tokenized gold are eroding demand for Bitcoin. Stablecoins and tokenized gold both operate on smart contract blockchains like Ethereum. Moreover, Wall Street is actively positioning itself, with Blackrock's CEO Larry Fink aiming to tokenize everything on the blockchain. This indicates growing expectations for Ethereum’s growth. Our Chief Technical Strategist, Mark Newton, believes that Ethereum’s price could reach between $9,000 and $12,000 by January next year. I consider this forecast reasonable, which means Ethereum’s price will more than double from now until the end of the year or January next year.

Overestimated Inflation and Controllable Geopolitics

Host: You mentioned that the Fear & Greed Index closed at 21 last Friday, indicating 'extreme fear,' and the CME FedWatch tool shows a 70% probability of a rate cut in December. Do you think this performance pressure might 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 recorded double-digit annual gains, and this year it could exceed 20%. Yet, at the end of 2022, almost no one was bullish. Wealthy individuals and hedge funds were advising clients to shift into cash or alternative assets—private equity, private credit, venture capital—but these asset classes were all outperformed by the S&P 500. This 'mismatch' is now backfiring on institutions.

Thus, 2026 should not be viewed as a bear market year. On the contrary, investors will likely return to high-growth stocks like NVIDIA, whose earnings are still growing by over 50%.

At the same time, the cryptocurrency market will benefit. Although there is a widespread belief that Bitcoin’s four-year cycle is ending and it should enter a correction phase, this view overlooks the macro environment. They forget that the Federal Reserve is about to start cutting rates. Our research shows that the correlation between the ISM Manufacturing Index and Bitcoin prices is even stronger than that with monetary policy. Until the ISM index reaches 60, it will be difficult for Bitcoin to peak.

Currently, the cryptocurrency market is constrained by insufficient monetary liquidity. The Fed’s quantitative tightening (QT) policy is expected to end in December, but clear signals of easing have yet to be released, 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 think that loose monetary policy or GDP growth will create inflation, but inflation is a very mysterious thing. We have experienced years of loose monetary policy without inflation. Now, the labor market is cooling down, and the housing market is weakening; none of the three drivers of inflation—housing, labor costs, and commodities—are rising. I even heard a Federal Reserve official say that core service inflation is rebounding, but after our review, we found this to be completely wrong. Core PCE service 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 situation arises, such as a geopolitical event, war, or supply chain issue causing oil prices to soar, would this become a variable that could turn you bearish?

Tom Lee: There is indeed that possibility. If oil prices rise high enough to cause a shock. Looking back at the last three economic shocks not caused 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 recent years, the energy intensity of the economy has actually decreased.

So, oil prices would need to approach $200 to cause that kind of shock. Oil prices near $100, which we've seen before, did not cause a shock. You really need oil prices to triple. This summer, when the U.S. bombed Iran’s nuclear facilities, some predicted it would cause oil prices to soar to $200, but in the end, oil prices barely moved.

Host: Yes, geopolitics has never dragged down the U.S. economy or stock market for an extended period. We’ve had localized shocks, but we’ve never seen a true economic recession or large-scale stock market crash in the U.S. due to geopolitics.

Tom Lee: Exactly right. Geopolitical tensions can destroy unstable economies. But in the U.S., the key question is: Will corporate profits collapse due to geopolitical tensions? If not, then we should not use geopolitics as the primary reason to predict a bear market.

How to Overcome Fear and Greed

Host: If Federal Reserve Chairman Powell unexpectedly does not cut interest rates in December, how will the market react?

Tom Lee: In the short term, this would be negative news. However, while Chairman Powell has done a good job, he is not popular within the current administration. If he does not cut rates in December, the White House may accelerate plans to replace the Fed chairman. Once replaced, there may emerge a 'shadow Fed,' and this new 'shadow Fed' will establish its own monetary policy. Therefore, I believe the negative impact won't last long because the new chairman may not be constrained by various voices within the Fed, and the way monetary policy is implemented may shift.

Host: I have many friends who have been holding cash since 2022 and are now very conflicted—they fear the market is too high but also worry about missing out on more gains. What is your advice for this dilemma?

Tom Lee: This is an excellent question because many people face this dilemma. When investors sell stocks, 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 tactical re-entry, panic selling may lead to missing out on long-term compound returns. Investors should avoid panic selling due to market volatility; every market crisis is actually an investment opportunity rather than a time to sell.

Secondly, for investors who have already missed market opportunities, it is recommended to gradually return to the market through 'dollar-cost averaging' rather than investing a lump sum. It is advisable to spread investments over 12 months or more, allocating a fixed percentage of funds each month. This way, even if the market declines, cost advantages can be achieved through phased purchases. Investors should not wait for a market correction before entering, as many investors share this mindset, 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 has been primarily driven by retail investors.

Tom Lee: I would like to correct a common misconception. Retail investors are not inferior to institutional investors in terms of market performance, especially those with a long-term investment perspective. Many retail investors base their stock investments on a long-term horizon, making it easier for them to correctly gauge market trends. In contrast, institutional investors, under pressure to outperform 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 such investors are more concentrated among retail investors.

Host: For companies like $Palantir (PLTR.US)$with a price-to-earnings ratio in the triple digits, many people think they are too expensive. Under what circumstances do you believe a triple-digit P/E ratio can still be reasonable for long-term investors?

Tom Lee: I categorize companies into two groups. The first group includes companies that are unprofitable but have a P/E ratio of 100 times (accounting for about 40% of approximately 4,000 listed companies outside major indices). Most of these are poor investments.

The second group consists of so-called N=1 companies:

1. These companies are either laying the groundwork for a massive long-term story, hence their current lack of profitability;

2. Or their founders are continuously creating new markets, making their current profit streams unable to reflect their future potential.

$Tesla (TSLA.US)$and Palantir are examples. They deserve extremely high valuation multiples because you are discounting their future potential. If you insist on only paying a 10x P/E ratio for Tesla, you would have missed out on the opportunity of the past seven to eight years. You need a different mindset to identify these unique, founder-driven enterprises.

Lessons Learned and Final Recommendations

Host: Many people say that this rally is overly 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 massive amounts of capital. You and I cannot create a product that competes with OpenAI in a garage.

Scalable industries are like energy or banking. There are only eight major oil companies in the world. If someone said that oil is a cyclical business because there are only eight companies buying oil, we would find it absurd. Because you have to be big enough to drill for oil. The same applies to AI—it is a scalable business. This is what the current market landscape shows. Do we want NVIDIA to deal with tens of thousands of small companies? I would rather they collaborate with large companies that can deliver results and ensure financial viability. Therefore, I believe the current concentration phenomenon is logical.

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

Tom Lee: The past two years have shown that the public’s 'collective misreading/misunderstanding' can last a long time. As we discussed earlier, many people were firmly convinced of an impending recession due to the inverted yield curve, even though corporate data did not support it. They preferred to cling to their anchored beliefs. Companies thus became cautious and adjusted strategies, but earnings remained robust. Often, when data conflicts with people’s views, they choose to believe themselves rather than the data.

Fundstrat has maintained a bullish stance because we do not stubbornly adhere to our own views; we anchor ourselves to earnings, and ultimately, earnings data proves everything. People call us 'perma-bulls,' but earnings themselves have been on a 'permanent rise.' What else can I say? We simply followed a different set of data that ultimately drives stock prices.

It is important to distinguish between 'having conviction' and 'being stubborn.' Stubbornness means thinking you are smarter than the market; conviction means being steadfast based on the right things. Remember, in a room full of geniuses, at best, you can only be average.

Host: Peter Lynch once said, 'Waiting for a correction costs more money than the correction itself.' What is your take on that?

Tom Lee: There are a few masters of contrarian moves 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, for example. When its stock price fell to $8, many were too fearful to buy, and every additional 10% drop further intensified investor hesitation. Tom Lee believes that this emotional stubbornness often stems from a lack of firm conviction rather than rational judgment.

Host: How do you explain the emotional, rather than fundamentals-based, reactions exhibited by many investors during market downturns?

Tom Lee: This is a behavioral issue. The word 'crisis' consists of 'danger' and 'opportunity.' Most people only focus on the danger during a crisis. When the market falls, people only think about the risks in their portfolios or believe 'Oh no, I must have missed something because the great idea I believed in should rise every day.'

However, they should view this as an opportunity because the market always provides chances. A good example is the tariff crisis from February to April this year. Many people went to the other extreme, believing we were heading into a recession or that everything was over. They only saw the danger and failed to recognize the opportunity.

Moreover, sentiment and political bias significantly influence market perceptions. Earlier consumer sentiment surveys showed that 66% of respondents leaned toward the Democratic Party, and these respondents had a more negative view of the economy. However, the stock market cannot distinguish such political affiliations. Companies and markets operate independently of political views. Investors need to look beyond emotions and political biases. The 'sports fan mentality' and self-esteem factors in investing can lead to decision-making biases, such as favoring companies they prefer or seeking confirmation when stocks rise, while feeling frustrated during declines. Even machines cannot fully eliminate biases because their design still carries human characteristics. To better address these influences, investors should focus on supercycles and long-term trends, like NVIDIA’s role in AI or Palantir's mission, where short-term stock price fluctuations do not diminish their long-term potential.

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

Tom Lee: I’d say, 'Buckle up.'

Because although the market has risen significantly over the past six years, we’ve experienced four bear markets. That means we almost encounter a bear market annually, which tests your resolve. So I believe people need to be prepared because next year will likely be no different. Remember, at one point in 2025, we fell 20%, but the year might end up rising 20%. So keep in mind, this pattern is very likely to repeat itself.

Host: Additionally, what advice would you give to newcomers who entered the market after 2023 and haven’t seen a significant correction yet?

Tom Lee: First, it feels great when the market rises, but there will be prolonged periods of pain ahead, making you question yourself. But it is precisely during those times that you need determination and conviction the most. Because the money made by investing at lows far outweighs trying to profit from trading at highs.

Editor/Joryn