00:11:03 · Ed Elson
[00:11:03] S4: In terms of the circular financing, I think one of the concerns, even if we would call it ecosystem development, is that it is implying that demand might be stronger than it than it than it would have been if the demand were organic. Like, if you didn't have these circular relationships, then you wouldn't see as large of a business, and therefore, the argument is that this is artificial growth that we're seeing. I think the same thing would be said about token maxing as an example. Businesses tell their employees, you have to use as many tokens as possible. And the reason that we wanna do that is because we wanna be part of this revolution and we we feel very strongly about this. Then suddenly they say, actually, this is too expensive. Let's pull back on the on the token spend. And as a result, it does seem at least that the growth of the token use is beginning to slow. Whether that's directly a result of token maxing, I'm not sure. But it does seem in those cases that there are these dynamics that point to an ecosystem where the signals that we're getting aren't maybe the purest signals of organic growth that are completely dependable. Do you disagree with that, or do you not worry about that?
00:12:23 · Tom Lee
[00:12:23] S5: I mean, I just wanna point out as a practical matter, exponential growth industries don't have the same rate of change, sequentially. Cisco, for instance, in 1997 had two quarters of 20% sequential growth, and it went down to five. And in 1997, Cisco stock fell 50%, and the the data networking analysts said this... The growth story is over. And, they said there's competition coming from Internet protocol switching. So Cisco fell from $9 to 5. A year later, was at 18. So growth, an exponential s curve industry doesn't grow at the same pace. I think token usage still has the Jevons paradox at work. You know? And it doesn't mean every day and every month and every quarter, it grows exponentially. I covered mobile. There might have been six, growth cycles in there and growth recessions because, hey. You roll out GSM, then growth slows. Or if you roll out a new Nokia phone, there's an upgrade cycle, and it slows. But everyone thought that was the end of the penetration cycle for mobile, and, of course, it continued for thirty years. I think that token maxing and people thinking rate of change for tokens is gonna explain the peak of the cycle, they they haven't covered prior growth cycles. And I... And, again, I'm just emphasizing I've covered many in my lifetime. I'd say the real key is is AI no longer providing remarkable innovation? And if it doesn't, that's really the end of the cycle.
00:14:02 · Ed Elson
[00:14:02] S4: When you look at Anthropic growth as an example, does that make you feel more bullish on the AI trade? I mean, it's grown dramatically over the past year. But one of the criticisms now that we have these q three numbers is that the growth has slowed quite significantly to around 47 to 50, I believe. And then next quarter, based on ramp data, it's expected that it'll be around 25%. And some people are saying this is not good. Do you think that that is indicative of a regular growth cycle? Is that the kind of growth that you would have expected from Anthropic?
00:14:41 · Tom Lee
[00:14:41] S5: Well, I think, you know, part of the confusion around Anthropic is really its its revenue policies and how they treat... You know, like, what you and I would consider, like, subscriber and organic and unit growth is not necessarily how they're reporting revenue. And so it affects the growth of sequential. And you know what? They'll probably learn that as a public company. And another thing to keep in mind is that, when it comes down to the fullness of time, when we look back at the Internet cycle and mobile cycle, the long term winners might actually be second wave companies, you know, downstream companies. So, like, in other words, OpenAI and Anthropic are the frontier companies. They're not that dissimilar to Netscape and, Cisco. But were those companies the ones that you made money on in the next ten years? It's... It'll be TBD because, actually, the history shows downstream did better. The post Internet downstream companies were companies like Netflix, you know, eBay, Expedia, Tower Stocks, Apple. Apple wasn't even in the first wave of Internet and mobile. You know, they didn't launch a product until 2007, which is thirteen years after the launch of Internet and after the bubble had burst. So I think, you know, we probably have to have some flexibility to say, is is my personal investment, how am I gonna make money in AI? It it may not be through Anthropic or OpenAI. It may be, though. So I'm not. But, you know, it end up being a company like SpaceX or Apple as the long term winner.
00:16:20 · Ed Elson, Tom Lee
[00:16:20] S4: Just going back to our previous episode when we had you on in July, your prediction was that the S and P would hit 8,000 by the end of the year, but not before we saw a significant correction in the fall, and your expectation was that stocks would come come back after that correction. Seems like maybe we're... We could call this the correction. Do you feel that your prediction is tracking? Do you still think, that we'll hit 8,000? That'll be around five and a half percent higher than where we are now. [00:16:49] S5: Well, one thing I'd point out is, like, I know when I was last on your show and I mentioned that possibility of a correction, many people were very dismissive because the market had a lot of momentum at the time. And I think that's what we have to be wary of is that when the market's strong, people can never see a big correction ahead. I do think we're now in this correction that I was mentioning because, like, memory is down almost 50%, and the AI trade's down more than 20. And as you point out, Nasdaq's down 10. But I think we're at the end of that sell off. I think the rally into year end will be even stronger. I think we could be at 8,200, maybe even 8,400 by the end of the year. So I think we're gonna rally above what I thought originally.
00:16:49 · Tom Lee, Ed Elson
[00:16:49] S5: Well, one thing I'd point out is, like, I know when I was last on your show and I mentioned that possibility of a correction, many people were very dismissive because the market had a lot of momentum at the time. And I think that's what we have to be wary of is that when the market's strong, people can never see a big correction ahead. I do think we're now in this correction that I was mentioning because, like, memory is down almost 50%, and the AI trade's down more than 20. And as you point out, Nasdaq's down 10. But I think we're at the end of that sell off. I think the rally into year end will be even stronger. I think we could be at 8,200, maybe even 8,400 by the end of the year. So I think we're gonna rally above what I thought originally. [00:17:34] S4: Just before we wrap here, midterm results will be in when this airs. You mentioned that there might be concerns that if we have a democratic sweep, then that would... Might mean a wave of anti AI or anti data center legislation. Talk a little bit more about that, but also what are your expectations for after the midterms? Because your prediction assumes that investors will actually feel pretty good coming out of this election.