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us earlier this month. Our next guest sees opportunity within that sell-off. Joining me now is Funstrat's Tom Lee. He's also a CNBC contus. Good to have you back. Um, you say that AI concerns are preventing AI from becoming a bubble. Some would suggest that these concerns are merely popping what had become a bubble.
Uh, God, I know there's going to be two sides of that debate, but the reason I'm going to say AI concerns are preventing a bubble is that we're continuing to see astounding discoveries made by AI. I mean whether it's the muse and the agents but maybe two weeks ago open AAI and discovering 770 math problems.
This is not the end or late cycle for AI discovery and even the productivity boost. So as long as we're starting to see advances there every dollar of capital raised for AI is generating returns. I think it's actually really healthy that the debt markets are sort of preventing a runaway uh speculative boom in AI.
So I think it's actually a very healthy correction that way. So you're you're focused more on the derivative impacts I I suppose you could say rather than spending concerns, funding concerns, capital crunch concerns, all the above. Uh yeah, I mean unfortunately AI does require a lot of dollars. Um, we did a report a few weeks ago showing that if AI is going to spend 30 trillion over the next 25 years, one there's actually plenty of investment dollars available because interest income from just American households annually is about 7 trillion.
So, you know, a trillion of that can be funded by just the interest income earned by Americans. But the mobile network build was about 25 trillion and roadways are 25 trillion. I think AI is a more important infrastructure build arguably than mobile and it's about the same dollar. So I I don't think there's too much money being thrown at AI today.
Would you buy the selloff yet? Yes, I think we're at the I think we're near the end stages of the selloff because it's become a consensus short uh to be shorting tech and I think yields which was really worrying markets as you know they've backed away. I mean, you've got two things that were headwinds before.
The Fed quite hawkish, now it's flipping potentially doubbish and interest rates, which were touching five, people fearing 6% are now back below 5%. I think the only things you have now is debt markets are kind of closed at the moment. And of course, the uncertainty about the war. I mean, would you if you say yes, I'd buy it, where would you buy it?
Would you you stay just with these largest AI related stocks in the market? Yeah, I Scott, I think the AI uh and the bottlenecks of the memories and the Nvidas and the Mag 7, they they're being sold because it is easy to short them now. And I think of course people are worried about the credit side, but I think they're bottoming, but I also like the software and I I like the crypto here.
I think kind of the whole broad cyclical trade I'd be pretty bullish on. And as you know, financials haven't been rallying, but rates are coming down. So, I think there's a lot of opportunity. This is what I view as a coiled string spring because the fundamentals have been holding in. Wow. I mean, if you look at, you know, the the semiconductor index or the DRAM ETF, for example, we show that one.
Um, there's so much destruction within that trade. I I just I wonder what that chart what story that chart is really going to be telling in the weeks, if not months ahead. Uh Scott, I I think it just shows you what a battle AI is today. But keep in mind that in 1997, 3 years after the launch of the public internet and browsers, uh Cisco, which was the biggest stock at the time, had a massive 50% draw down, partly because Alan Greenspin was saying we had a irrational exuberance and then later kind of hinted at preemptive hikes, not too dissimilar to today.
Cisco went had a 50% correction, went down to five, a year later was 18. I I think the setup is similar. You know, Chat GBT is basically crossing its third anniversary. I think we're so early in this AI trade, but it's understandable for people to be worried. I mean, a lot of people made money and there's a lot of profit taking as well.
What about other areas of the market? Yeah, the market's broadened, but in a, you know, not so great way. Healthcare, staples, utilities. That doesn't exactly exude confidence in the market. No. Yeah. To see uh waste services, which is a super defensive group rallying does show the market's nervous.
I I'd say the halfful argument is that that's also a breath argument. Uh but I did talk with Mark Newton. I I it does look like we're seeing, you know, tech basically touching support. So I think we know that the next couple weeks are uncertainty into midterms. I think this is the window where investors can buy things because the market is going generally risk off but I think post midterms the market's going to rally broadly and very strongly.
I mean we did have Mark on yesterday if not the day before who said under the surface the Q's and the S&P are stronger than it would seem. So we shall see. Tom, thanks Tom Lee. Coming up next, count you down to Western Digital earnings and overtime not much more in the market zone which is coming up next.
The demand for the Neoclouds is off the charts. Their capabilities are extraordinary. And so what is missing in the middle is the working capital to fuel that growth, to fund that growth. And because there's just so much demand across so many sectors of AI, there's a scarcity of capital. Their challenge is do they have the capital, the debt and equity and the quantum that's needed to deliver.
I think some of these companies have very talented CEOs. Cororeweave is a good example of this. They'll find a way through it, but that's the challenge they face. The underlying business is actually quite strong. Those comments come as Meta indicated that it needs to aggressively spend on AI next year even after revealing a stock sale in a letter to shareholders.
Meta disclosing that its special committee recognized that the timing is important to secure capital before competitors like Alphabet, SpaceX, OpenAI saturate various funding options and that debt required could hurt Meta's credit rating. Now Meta Scott is currently solidly investment grade double A minus by S&P but the prospect of additional debt sales is sending its five-year credit default swap to a fresh high today.
See, it's a great look for us. We appreciate that. That's Sema Modi. Now, let's bring in CNBC contributor Big Technologies, Alex Kow. It's good to have you on. I'm wondering if you think we've reached an inflection point uh in the funding phase of this buildout. Well, I can tell you that the demand for this debt and the demand for more money to build more AI is only going to grow.
And it's not just Meta, it's Google like Meta pointed out in its note. Uh it's going to be open AI, it's going to be anthropic. All these companies are going to be looking for ways to fund the backbone of AI, which is compute, and which is infrastructure. And now that's getting really, really crowded.
And all of a sudden, you might see the fact that it's so crowded start to ripple into the way that these companies are traded, the way that the market looks at their debt. And of course, this is a technology that's unproven. When you have debt, you want to make sure that you know that you can for sure pay it back.
But we don't know what the timeline is for these investments to pay off. And that's why the market is panicking. The numbers are so staggering and not even the near-term ones. If you look at the cumulative expectation of 10.3 trillion according to some sources through 2032 if you include data centers and chips and power and networking, sort of the entire AI pie is going to end up costing that much.
When you hear Jensen Wong talk about a quote scarcity of capital, what do you think? Well, it may it makes sense to me because for many of these companies, it's existential. Like if you take Meta for example, the company has seen some traction with this Muse agent, but it can't stop. And and Muse is extremely uh token intensive, which means it's capital intensive to serve.
So you're a company like Meta. Uh you're a big company and you have an option here. You continue to raise money and raise debt in order to keep funding this, maybe even, you know, an equity event. uh or you pack up your bag and go home. And the fact is that if this is going to be the way that consumer technology goes, which is clearly what Mark Zuckerberg thinks.
He talked about how he wants to scale Muse up to a billion users, if you sit it out, uh then you're going to fall behind everybody else. So, it's all these companies scrambling for the similar pie of money. Uh and we're starting to see every we're starting to see it come to a head pretty much. Is is that a threat to the story itself?
The the the scarcity of capital, the crowding out of capital. I want to read you what Sema had in her report, which to me underscores everything about where we are. As they say, quote, "The special committee also recognized that timing is important to secure capital before competitors saturate various options.
recent significant capital raises at other notable companies and others soon anticipated to take place to fund the same AI growth. For example, Alphabet, SpaceX, Anthropic, and Open have resulted in an increasingly challenging environment for raising capital. We can't really afford a challenging environment for raising capital, can we?
If we've promised all of this spend. Oh, absolutely right. And you said it earlier today and I think you were spot on where this entire story has been dependent on the promise to raise, the promise to spend and then the promise eventually to turn in a return from all that spending. And if any one of the legs on that stool starts to break or wobble, you start to see this entire story wobble. So I think it certainly is a risk here. Yeah.
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