Exclusive interview with Tom Lee: Market volatility but the bull market is far from over, Ethereum is expected to reach $12,000 by January next year.

Video: Fundstrat

Compiled/Edited by: Yuliya, PANews

In today’s era where most analysts are cautious or even pessimistic about the market, Tom Lee, Chairman and Senior Strategist of BitMine, has issued a very different bullish outlook. In this Fundstrat interview, Tom Lee delves into the current macro cycle, the AI super cycle, market sentiment shifts, inflation risks, and the future trajectory of crypto assets. He believes that the market is at a critical point of a “super cycle,” and investors’ misjudgments of macro signals, yield curves, inflation logic, and the AI industry cycle are causing systemic mismatches. He not only predicts the S&P 500 to reach 7000 to 7500 points by year-end but also suggests Ethereum and Bitcoin are poised for a strong rebound. PANews has compiled and organized this dialogue into text.

We are in an misunderstood “super cycle”

Host: Tom, welcome. Let’s first review: over the past three years, the market has risen by more than 80%. You have been one of the few voices maintaining a bullish stance. From your perspective, where did 90% of analysts and bears go wrong from 2023 to 2024, and even this year?

Tom Lee: About 80% of trading fundamentally depends on the macro environment. Over the past three years, investors almost all saw themselves as “macro traders,” but they made two key mistakes.

• First, they over-trusted the “scientific” nature of the yield curve. When the yield curve inverts, everyone sees it as a recession signal. But we explained at Fundstrat that this inversion was due to inflation expectations—short-term inflation was high, so short-term nominal rates should be higher, but over the long term, rates will decline, which causes the inversion.
• Second, our generation has never truly experienced inflation, so everyone used the 1970s stagflation as a template without realizing that today’s conditions don’t support the kind of persistent inflation that caused that era.

Therefore, people are structurally bearish, believing “an inverted curve means recession, stagflation is imminent.” They completely missed that companies are actively and dynamically adjusting their business models to cope with inflation and Fed tightening, ultimately delivering excellent profits. In the stock market, time is the greatest friend of great companies and the worst enemy of mediocre ones—this remains true during both inflationary periods and bull markets.

Host: I notice you think the current market environment resembles 2022, when almost everyone turned bearish, and now, as anxiety re-emerges, you are once again bullish. What do you think is the biggest misconception about the current market pattern?

Tom Lee: I believe the hardest thing for people to understand and grasp is the “super cycle.” We turned structurally bullish in 2009 because our cycle research indicated a long-term bull market was beginning. In 2018, we identified two future super cycles:

• Millennials: They are entering their prime working age, which will support a strong 20-year-long tailwind.
• Global labor shortage in the prime age: This may sound dull, but it laid the foundation for the AI boom.

Why is the AI boom fundamentally different from the internet bubble?

Tom Lee: We are in a prosperity driven by AI, which keeps pushing asset prices higher. This is textbook: from 1991 to 1999, labor shortages fueled tech stocks; from 1948 to 1967, similar shortages supported tech booms. Today, the AI wave repeats this pattern.

However, many see high Sharpe ratio stocks as bubbles and try to short companies like Nvidia, but that may be a bias. They forget that today’s AI industry is entirely different from the internet of the 1990s. Back then, the internet was just a “capital expenditure frenzy,” whereas AI is a “functionality gain.”(gain of function)

Host: Many compare the current AI boom to the late 1990s internet bubble, even likening Nvidia to Cisco. Having experienced that era firsthand, what do you see as the fundamental difference?

Tom Lee: That comparison is interesting but fundamentally flawed. Telecom CapEx (like Cisco) and GPUs (like Nvidia) have entirely different life cycles.

People forget that in the late 1990s, the CapEx boom was centered on telecom—laying fiber optics—not the internet itself. Telecom spending in emerging markets was tied to GDP growth, and this hot money spread to the US, leading companies like Quest to lay fiber along railroads and streets, while Global Crossing built submarine cables globally. The problem was, the demand for fiber from the internet couldn’t keep up with its deployment—at its peak, nearly 99% of fiber was “dark fiber,” unused.

Today, the situation is the opposite. Nvidia’s chips are in near-constant demand, with GPU utilization approaching 100%, ready to meet market needs. Supply cannot keep up; even with a 50% capacity increase, chips are sold out instantly. The industry faces three main constraints: Nvidia chip supply, related silicon materials, and energy supply. These factors collectively limit expansion. Meanwhile, AI’s functional improvements are exceeding expectations, further boosting hardware demand. Yet, capital expenditure has not caught up, and the industry remains supply-constrained. In other words, AI’s capital spending is still “lagging behind innovation.”

Year-end market forecast and crypto potential

Host: You’ve repeatedly mentioned that the S&P 500 could reach 7000 to 7500 points by year-end. Among your bullish predictions, which sector do you think will surprise investors the most?

Tom Lee: First, market sentiment has become quite pessimistic over the past few weeks. Because the government shutdown temporarily drained liquidity, and the Treasury didn’t disburse funds, liquidity contracted, causing swings in the stock market. Whenever the S&P drops 2-3%, or AI stocks fall 5%, investors become very cautious. I believe the foundation for a bullish rally is fragile—everyone feels a top is near. But I want to emphasize: when everyone thinks a top is imminent, it usually isn’t. The dot-com bubble top formed because no one believed stocks would fall.

Second, remember that the market has performed strongly over the past six months, but investor positioning is severely skewed, indicating huge potential demand for stocks. In April, due to tariff fears, many economists predicted a recession, and institutional investors traded accordingly, preparing for a large-scale bear market. This misallocation of positions won’t be corrected in six months.

Now, as we approach year-end, 80% of institutional fund managers are underperforming their benchmarks—the worst in 30 years. They have only about 10 weeks left to catch up, which means they will have to buy stocks.

So, I expect a few things to happen before year-end:

• AI trading will make a strong comeback: Despite recent dips, the long-term outlook remains intact, and companies are likely to make major announcements about 2026.
• Financials and small caps: If the Fed cuts rates in December, confirming a dovish cycle, it will be very positive for financials and small caps.
• Cryptocurrencies: Since crypto is highly correlated with tech, financial, and small-cap stocks, I believe we will see a large crypto rebound.

Host: Since you mentioned crypto, what level do you think Bitcoin will reach by year-end?

Tom Lee: Expectations for Bitcoin have lowered somewhat, partly because it has been sideways and some early Bitcoin holders (OGs) sold when prices exceeded $100,000. But it remains a heavily undervalued asset class. I believe Bitcoin could reach into the tens of thousands or even $200,000 by year-end.

More obviously, Ethereum could see a huge rally before year-end. Even Cathie Wood has written that stablecoins and tokenized gold are eating into Bitcoin’s demand. Both stablecoins and tokenized gold operate on smart contract blockchains like Ethereum. Moreover, Wall Street is actively positioning; BlackRock’s Larry Fink wants to tokenize everything on blockchain. This boosts expectations for Ethereum’s growth. Our technical strategist Mark Newton estimates Ethereum could hit $9,000–$12,000 by January. I think this is reasonable, meaning Ethereum could more than double from now to year-end or January.

Overestimated inflation and manageable geopolitical risks

Host: You mentioned the fear-and-greed index closed last Friday at 21, in the “extreme fear” zone; CME’s Fed watch tool shows a 70% chance of rate cuts in December. Do you think this performance pressure will also drive institutional funds into Bitcoin and Ethereum?

Tom Lee: Yes, I believe so. Over the past three years, the S&P 500 has had two-digit gains for three consecutive years, possibly over 20% this year. Yet, at the end of 2022, almost no one was bullish. Wealthy individuals and hedge funds advised clients to move into cash or alternative assets—private equity, private credit, venture capital—and these assets underperformed the S&P. This “mismatch” is now biting institutions.

Therefore, 2026 should not be seen as a bear year. Instead, investors will re-chase high-growth stocks like Nvidia, which still grow earnings by over 50%.

Meanwhile, the crypto market will benefit. Despite widespread belief that the four-year Bitcoin cycle is ending and a correction is due, this overlooks macro conditions. Remember, the Fed is about to cut rates. Our research shows that the correlation between the ISM manufacturing index and Bitcoin price is even higher than with monetary policy. Before the ISM hits 60, Bitcoin is unlikely to top out.

Currently, the crypto market is constrained by liquidity shortages. The Fed’s QT is expected to end in December, but no clear easing signals have been given, causing confusion. As macro factors clarify, crypto could perform more positively.

Host: What do you think is the most overhyped risk right now?

Tom Lee: I believe the most overhyped risk is “inflation returning.” Too many think loose monetary policy or GDP growth will cause inflation, but inflation is a mysterious phenomenon. We experienced years of loose policy without inflation. Now, the labor market is cooling, housing is weakening, and the three main inflation drivers—housing, labor costs, and commodities—are not rising. I even heard a Fed official claim core services inflation is rising, but after checking, it’s wrong. PCE core services inflation is at 3.2%, below the long-term average of 3.6%. So, the idea that inflation is picking up is incorrect.

Host: If an unexpected event occurs—say, geopolitical tensions, war, or supply chain disruptions causing oil prices to spike—would that change your bearish view?

Tom Lee: It could. If oil prices rise enough to cause shocks, that would matter. Historically, three major shocks not caused by the Fed were commodity price surges. But for oil to seriously impact households, prices need to reach very high levels. Over the past few years, energy intensity of the economy has decreased.

So, oil would need to approach $200 per barrel to cause such shocks. We’ve come close at $100, but it didn’t cause a recession. You really need oil to triple. This summer, the US bombed Iran’s nuclear facilities, with some predicting oil would spike to $200, but prices barely moved.

Host: Yes, geopolitical issues have never caused a long-term drag on the US economy or stock market. We’ve seen localized shocks, but never a true recession or major crash due to geopolitics.

Tom Lee: Exactly. Geopolitical tensions can destroy unstable economies, but in the US, the key question is: do profits collapse because of geopolitical tensions? If not, then geopolitics shouldn’t be the main basis for predicting a bear market.

How to overcome fear and greed

Host: If Powell unexpectedly doesn’t cut rates in December, how do you think the market will react?

Tom Lee: In the short term, that would be negative. But Powell has done a good job, though he’s not very popular within the current administration. If he doesn’t cut in December, the White House might accelerate plans to replace him. Once replaced, the new “shadow Fed” could set its own policies. So, I don’t think the negative impact will last long, because the new chair might not be bound by the existing Fed’s internal constraints, and policy could shift.

Host: Many friends have held cash since 2022 and are now torn—afraid the market is too high but also worried about missing further gains. What’s your advice for this dilemma?

Tom Lee: That’s a great question. Many face this dilemma. When investors sell stocks, they face two decisions: one, to sell; two, to re-enter at a better price. If they can’t tactically re-enter, panic selling might cause them to miss long-term compounding gains. So, avoid panicking and selling during volatility—each crisis is an opportunity, not a reason to sell.

Second, for those who missed the initial move, a dollar-cost averaging (DCA) approach is recommended: gradually re-enter the market over 12 months or more, investing a fixed amount each month. Even if the market dips, this method can lower your average cost. Don’t wait for a perfect correction to buy, as many do, which risks further missed opportunities.

Host: How do you view retail versus institutional investors? Some say this bull market is mainly driven by retail investors.

Tom Lee: I want to correct that misconception. Retail investors, especially those with a long-term perspective, perform just as well as institutions. Many retail investors are long-term holders, which makes it easier for them to see the true market trend. Conversely, institutions often focus on short-term performance, sometimes ignoring long-term value. Anyone operating with a long-term view can be considered “smart money,” and many such investors are retail.

Host: For high P/E companies like Palantir, with triple-digit P/E ratios, many say they’re too expensive. When do you think a triple-digit P/E might still be justified for long-term investors?

Tom Lee: I categorize companies into two groups:

1. Those that are unprofitable but have P/E ratios around 100 (about 40% of the 4,000 listed companies), which are generally poor investments.

2. N=1 companies:

• Those laying the groundwork for huge long-term stories, thus unprofitable now;

• Or founders creating new markets, making current earnings unreflective of future potential.

Tesla and Palantir are examples. They deserve high valuations because you’re discounting their future. If you insist on paying only 10x earnings for Tesla, you’d miss out on the past 7-8 years of growth. You need a different mindset to identify these unique, founder-driven companies.

Lessons learned and final advice

Host: Many say this rally is overly concentrated in a few stocks like Nvidia, indicating a bubble. Do you agree?

Tom Lee: AI is a scaled business, meaning it requires huge capital investment. You and I can’t create a product to compete with OpenAI in a garage.

Scale industries are like energy or banking. There are only eight major oil companies. If someone claims oil is a cyclical business because only eight firms buy oil, that’s absurd. You need to be big enough to explore and produce oil. AI is the same—it’s a scaled business. That’s what the current market pattern shows. Do we want Nvidia to compete with thousands of small firms? I prefer they work with large, capable companies that can deliver results and ensure financial viability. So, the current concentration is logical.

Host: Despite working in this industry for forty years, what’s the most important lesson the market has taught you over the past two years?

Tom Lee: The past two years have shown that the “collective misreading/misunderstanding” by the public can last a long time. As we discussed, many believed in recession because of the inverted yield curve, despite company data not supporting it. They clung to their anchors. Companies became cautious and adjusted strategies, but profits remained strong. Often, when data conflicts with their views, people choose to believe their biases over the facts.

Fundstrat remains bullish because we don’t cling to fixed views; we focus on earnings, and ultimately, earnings prove everything. People call us “perma-bulls,” but earnings have been “permanently rising.” What else can I say? We follow a different data-driven approach that ultimately drives stock prices.

It’s important to distinguish “conviction” from “stubbornness.” Stubbornness is thinking you’re smarter than the market; conviction is being firm based on correct reasoning. Remember, in a room full of geniuses, you can only be average.

Host: Peter Lynch said, “Waiting to recover losses costs more than the losses themselves.” What’s your view?

Tom Lee: There are a few contrarian masters like Lynch, Tepper, and Druckenmiller who excel at making decisive moves when sentiment is low. For example, Nvidia’s stock fell to $8, and many were too fearful to buy, even as it kept dropping 10%, increasing hesitation. I believe this emotional stubbornness often stems from a lack of conviction, not rational judgment.

Host: How do you explain investors’ emotional reactions during market declines, often ignoring fundamentals?

Tom Lee: That’s behavioral finance. “Crisis” combines “danger” and “opportunity.” Most focus only on danger during crises. When markets fall, they think about risks to their portfolios or that “the good ideas I believed in should be rising every day.”

But they should see it as an opportunity, because markets always give chances. The tariff crisis from February to April was a good example. Many saw only danger, believing a recession was imminent, missing the opportunity.

Additionally, emotions and political biases heavily influence market views. Consumer sentiment surveys show 66% of respondents lean Democratic, who tend to be more negative about the economy. Markets can’t fully account for such political biases. Investors need to look beyond emotions and politics. Fan mentality and ego can distort decisions—favoring their favorite stocks or seeking confirmation during rallies, feeling frustrated during declines. Even algorithms can’t fully eliminate bias, as they reflect human traits. To better handle these influences, investors should focus on super cycles and long-term trends, like Nvidia or Palantir’s missions, which remain promising despite short-term volatility.

Host: Finally, if you had to summarize the next 12 months in one sentence, what would it be?

Tom Lee: “Buckle up.”

Because over the past six years, despite market gains, we experienced four bear markets. That means nearly every year, there’s a bear phase testing your resolve. So, I think people should be prepared, because next year likely won’t be different. Remember, in 2025, we had a 20% drop at some point, but the year ended up +20%. Such swings are likely to recur.

Host: For newcomers who entered after 2023 and haven’t seen a real major correction, what’s your advice?

Tom Lee: First, markets feel great during rallies, but long painful periods will follow, causing doubt. That’s when you need conviction and faith. Because investing at the lows yields far greater returns than trying to trade at the highs.