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Tom Lee just made another big prediction for the stock market. He says the AI stock crash is almost over and better times are ahead. He claims that AI stocks are what you need. Now is the time to buy on the dip, although I don't entirely agree with that, and in this video I'll share my views on AI hardware stocks and which areas look more attractive.
I'll also share where I think the next big deal in AI will be, if you don't already know this since you're new to the channel . But first, before we get to that, listen to what Tom Lee just said . Our next guest sees opportunities in this sale. I'm with Tom Lee from Fundstrat. He is also a contributor to CNBC.
Nice to see you again. You say that concerns about AI are preventing it from becoming a “ bubble.” Some suggest that these fears only caused the bursting of the "bubble" that had already formed. Oh my God, I know there will be two sides to this discussion . But the reason I say that concerns about AI are preventing a “ bubble” is because we continue to see amazing discoveries made by AI.
I mean, whether it's Muse and agents, or maybe two weeks ago OpenAI solved 770 math problems. This is not the end or late cycle for AI discoveries and even for productivity improvements. So, as long as we see progress there, every dollar of capital raised for AI is profitable. I think it's actually really great that debt markets are, to some extent, curbing the uncontrolled speculative boom in AI.
So I think this is actually a very healthy correction in that regard. So you're more focused on the derivative effects, I would say, rather than concerns about costs, funding, capital issues, or all of that? Well, yes, I mean, unfortunately, AI really does cost a lot of money. We did a report a few weeks ago that shows that if AI is going to spend 30 trillion over the next 25 years, then, first of all, the investment dollars are actually sufficient, because the annual interest income of US households alone is about 7 trillion.
So, you know, a trillion of that could be financed just by the interest income earned by Americans. But the development of the mobile network cost about 25 trillion, and the highways cost 25 trillion. I believe that AI is a more important infrastructure development, perhaps than mobile communications .
These are approximately the same amounts. So I don't think there's too much money being poured into AI today. Would you buy on sale already? Yes. I think we are in the final stages of a sell-off because playing the short side in the technology sector has become commonplace. And I think the yields that were really bothering the markets, as you know, have receded.
So you have two things that used to be obstacles. The Fed has been quite tight, and now it is potentially becoming softer. And interest rates, which were approaching 5% and people feared 6%, are now below 5% again. I think the only thing that remains is that the debt markets are now somewhat closed, and of course, the uncertainty about the war.
I mean, if you said "yes, I would buy," where exactly would you buy? Would you limit yourself to just the biggest AI-related stocks? Yes. Scott, I think AI, memory bottlenecks, Nvidia, and "Mag 7" -- they're selling because it's easy to play the short side right now, and of course people are worried about the credit aspect.
I think they are bottoming out , but I also like software and cryptocurrencies at this point. I think I'm pretty optimistic about the whole broad cyclical trade. And , as you know, the financial sector has not grown, but rates are falling. So I think there are a lot of opportunities here. This is what I call a compressed spring, as the fundamentals remain stable.
Wow. I mean, if you look at, say, the semiconductor index or the DRAM ETF, we show it. There is so much destruction in this trade. I'm just curious what story this graph will actually tell in the coming weeks, if not months. Scott, I think this just shows what a struggle AI is today. But keep in mind that in 1997, 3 years after the launch of the public internet and browsers, Cisco, which was the biggest stock at the time, experienced a huge 50% drop.
Partly because Alan Greenspan talked about irrational exuberance and then seemed to hint at preemptive rate hikes, which is very similar to today. Cisco had a 50% correction, fell to five, and a year later it was 18. I think the situation is similar, because ChatGPT is actually celebrating its third anniversary.
I believe we are still at the very beginning of this journey in AI. It's understandable why people are worried. I mean, many have made money and are now actively recording profits as well. What about other market sectors? Yes, the market has expanded, but , you know, not in the best way. Healthcare, essential goods , utilities— this doesn't exactly add confidence to the market.
Well, the fact that Waste Management, a purely defensive sector, is growing indicates market nervousness. I would say the optimistic view is that this is also an argument in favor of market breadth. But I talked to Mark about it. It looks like we're seeing the tech sector actually touching support levels.
Although we understand that the next few weeks will be filled with uncertainty ahead of the midterm elections. I think this is a window of opportunity for investors to buy assets as the market is generally risk averse, but after the election it should grow strongly and broadly. Hmm, we talked to Mark yesterday or the day before yesterday, and he said that the QQQ and S&P indices are, in depth, stronger than they seem.
So we'll see. Tom, thank you, Tom Lee. So, I agree with many of Tom Lee's points. But I think a lot of that is already priced in, at least until the recent drop in semiconductor stocks. Semiconductor stocks are making some gains today . Besides the " Big Seven"—Apple, Meta, Google, Amazon, Tesla—other AI and hardware stocks have generally performed quite well.
I think the earnings reports will be good. And in the very short term, can equipment stocks go up 20-30%? Yes. This is quite likely. I wouldn't be surprised by such a result. A bigger question I ask myself about my own investment strategy: Are hardware stocks ready to double? Are they ready to triple?
Are they set up to bring me excess profits? And I just don't think that's the case at this point. I think the semiconductor story is a safer bet now from a numbers perspective, right? These companies are likely to beat earnings expectations in the next few quarters. Don't be surprised by this. But are these the best areas to invest in?
I don't think so. Today, our Trading Community portfolio grew by approximately 1%. Since the beginning of the year, we have a profit of 117%. I want to double this portfolio next year. I want another 100% profit next year. And I just don't think you'll see that in hardware stocks . Now, again, I have a very unique trading or investing strategy.
I look at 1- to 3-year horizons and try to find stocks that will double , triple, grow 5x or 10x, and I only buy five to ten stocks at a time. That's like the maximum number of assets I like to have. I like to basically find the best stocks, put all my eggs in those baskets, and watch them closely, as Stanley Druckenmiller once said .
Druckenmiller. Uh, I always say Druckenmiller. This is Druckenmiller. Um, one of the best investors who ever lived. This is never a recommendation. This is never financial advice. Please consult a financial advisor before making any investment decisions . And believe me, if you tell them, "Oh, I want to put all my money in five or ten stocks that I'm really confident in," they'll call you crazy.
They will think you are out of your mind . But if you're perhaps out of your mind and want to join . But, nevertheless , let's talk about the new AI trade. And I really strongly believe that we are in a transition period, right? From a numbers perspective, hardware stocks are rated as perfect. So, you know, they come out , they show great profits, and the stocks tend to go down, okay?
Almost rated as perfect. You need some kind of massive acceleration from this point on. Um, in the capex trade, in the expense trade, to really get significant growth, higher than 20-30%, which is a common move for a tech stock these days. For these areas to double, grow by 70-80%, something big, you need Meta, Amazon, Apple, Google, all of them to just double their efforts again.
Is it possible to do this? I do n't think so. Even Meta, right? Meta actually told you that there wasn't enough private credit for our spending plans. We will be forced to enter the markets and dilute investors' shares. And that will have consequences for other companies, right? A magnetic seven, for that matter.
And I don't think they want to sacrifice their credit ratings, their, you know, insider ownership in companies, to keep doubling down on AI over and over and over again. And I think it's becoming increasingly clear that it's not how much money you spend that matters, but how effectively you spend it.
You see, the next AI trend that I think will be the main topic for the next one to three years is AI software, cybersecurity, robotics, and automation. This is where, in my opinion, exponential value will be created. Firstly, because people are quite pessimistic about these areas, they have a fairly low proportion of these assets in their portfolios.
Few people are optimistic about these sectors. Cybersecurity—a little bit, right? This question has shifted somewhat. Some of the software has also picked up a bit, but I believe the opportunities in these areas are exponentially greater than Wall Street currently estimates. When it comes to automation, it's, for example, Zebra Technologies.
This is a company that no one even knows about. Most likely , I just said Zebra Technologies and you are looking for information about Zebra Technologies. You've probably never heard of them , but they're going to be one of the biggest AI winners in real-world automation. Yes? The scanners, the barcode scanners that are in every retail store—they're Zebra.
Of course? It's like UiPath. You know, these are the companies that benefit from actually implementing AI, not experimenting with it, which has been largely the main driver of demand for computing power recently. Will hardware stocks continue to fall? There is such a possibility. Now I really think that the profits will be good, but the question is what will happen to private lending?
Even Tom Lee said that private lending, you know, private capital is getting harder to get, and that's the main driver of capital spending. If that's the case, you'll see a lot more Meta-style share dilution from other hyperscalers . And I don't think it's very stable. And what, you know, Mark Newton said yesterday on CNBC, and what they talked about in this video—the markets are looking better from the inside right now, and that's true, right?
The percentage of stocks trading above their 50-day moving average fell slightly today to about 38%. This is much better than in early October, when only 24% of stocks traded above their 50-day moving average. That is, the situation has improved a little. And that's great. The midterm elections will be held on November 3.
Um, this could be a catalyst that will cause trade to expand and cause markets to move higher overall. Simply because you are removing the catalyst from the path. Good? Um, it doesn't matter who wins, Democrats or Republicans, I don't think it matters much. You can see that Democrats have a 68% chance of controlling the Senate.
You know, they have about a 93% chance of controlling the House of Representatives. If you want to get $50 for free from Kalshi, . Kalshi also has a long list of perpetual contracts, which are essentially a way to gain direct or indirect exposure to an index, treasury bonds, semiconductors, or individual stocks.
This is a way to simply play the market. For example, if you want to open a short position on Nasdaq, right? You either have to use put options, which is often a very inefficient way, or futures, which are often very expensive, right? A futures contract can cost thousands of dollars. You can do this on prediction markets, which I think is pretty cool, and significantly cheaper.
But, nevertheless , we have midterm elections approaching. To be honest, I think it's a positive development once we get past this stage. Reporting season is approaching. I think the profits will be good. Again , going back to the main question that I keep talking about on this channel: what will happen to the war with Iran?
It looks like it might start again. Will this not last long? Are we just going to bomb nuclear sites again? Iran will launch a few missiles at some military bases, and then we will make a deal or leave the region, or something. That would probably be the best case scenario. The worst case scenario would be the explosion of Kharg Island.
Literally destroying Iran's energy infrastructure for a long time, right? And Iran will do the same with its neighbors in the Persian Gulf. This will deal a devastating blow to oil markets. This will lead to an increase in Treasury bond yields. This will force the Fed to raise rates. This will lead to a significant deterioration in the trade situation.
And this is exactly the question that arises for me now. Will this happen again ? Aside from the war with Iran , I think there are many reasons for optimism right now. I am moderately optimistic about my portfolio. I have a small margin , about 8.5%. So you can see here 8.52% margin. I feel comfortable with this.
If stocks fall, if this portfolio falls 50%, I'll be out 16-17% margin. I feel very, very comfortable with this. I also feel that if the markets fall, I will have the opportunity to buy on the dip. But I don't have any options either. I'm not complaining now . So, I'm fully open to the markets plus a little margin.
If you want to understand what I think about the markets right now. Again, back to the main question: is the AI hardware sell-off over? I don't think anyone really knows that. I think there will be periods of fear, periods of volatility. Now everyone is talking about the " bubble". You know, everyone is waiting for it to break.
I don't think we're in a "bubble." I don't think it will crack. I think it will transform. Will semiconductors and memory stocks be the main assets in AI in 5 years? I don't think so. I think by then it will be robotics. I think it will be AI software, cybersecurity, and regular companies that use AI to become more profitable in ways that markets are not currently factoring in.
I think the AI sector will continue to evolve over time. I don't see any grand collapse unless something truly terrible happens, which I think is unlikely at this point. Yes, OpenAI and Anthropic will have a catastrophic drop in value because people will say, "Okay, we're not just going to keep funding huge losses." But that doesn't mean contracts will disappear.
I think the contracts will remain. Some of them will be canceled, of course. But then other players will appear to occupy this niche. Until OpenAI and Anthropic successfully go public, and I think they will, I don't believe the " bubble" will burst at all . So if there was a point where the " bubble" could burst, it would be a failed IPO for OpenAI and Anthropic, but I think there's too much institutional money behind these companies for that to happen.
So, . Again, links to Cal She, as well as our trading community, which you can join, are in the description for today's release. Have a wonderful day, see you in the next video.
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