Prof G Markets: “The Bull Case for 2026” — ft. Tom Lee

Date: December 12, 2025 | Podcast: Prof G Markets (Vox Media)
Hosts: Scott Galloway, Ed Elson
Featured Guest: Tom Lee, Co-founder and Head of Research at Fundstrat Global Advisors

Overview

This episode features Tom Lee, a widely respected strategist known for his perennial optimism (“perma-bull”) and nuanced understanding of market cycles. Lee joins Scott Galloway and Ed Elson for a deep dive into the bull case for the markets in 2026, examining past and upcoming market corrections, AI and tech valuations, structural changes in the market, and the risks and opportunities ahead. The discussion maintains a frank, lively tone, with a blend of market history, personal anecdotes, and practical investment insights that make the complex economic landscape accessible and compelling.

Key Discussion Points & Insights

1. Why Is Tom Lee Bullish on 2026?

[09:40]

• Suppressed Economy and Markets: Lee argues that recent years have put a lid on “animal spirits” in markets, citing six "extinction events": COVID-19, supply chain mess, inflation, aggressive Fed rate hikes, geopolitical shocks, and controversial US tariffs (even mentioning an incident of US bombing Iran).
• Lack of Monetary Easing: Persistent skepticism and a “Fed that has not really given a green light” have led to suppressed business confidence and tepid expansions.
• Looking Ahead: Lee is optimistic, believing 2026 will finally usher in a robust expansion phase – "I think that starts to happen next year" ([10:32]).

Notable Quote:

"All of these collectively have made investors very nervous about what I call investing in full risk. ...I think that starts to happen next year." — Tom Lee [10:32]

2. Market Concentration & The "Magnificent 10"/AI Stocks

[11:12]

• Large Cap Tech Dominance: Galloway points out that market bullishness seems contingent on big tech ("Magnificent 10") and AI players continuing to drive returns.
• Lee’s View: While he agrees these stocks need to keep growing, he foresees other market segments (the “other 490”) benefiting from rate cuts and a better business cycle, leading to broader gains.

Notable Quote:

"If the Fed is cutting and interest rates are coming down and the business cycle is sort of really starting, that that's good for other stocks." — Tom Lee [12:17]

3. Markets Climb a Wall of Worry: Skepticism vs. Overexuberance

[13:33]

• Current Market Sentiment: Lee rejects the idea that markets are simply shrugging off risk, emphasizing the longstanding power of skepticism in fueling rallies: "Markets climb a wall of worry."
• Comparison to the 90s: He notes today’s skepticism sharply contrasts with the late-90s bubble, when "there was excessive entitlement."

Notable Quote:

"Markets peak on good news. They don’t peak when people are bearish... I don’t really see the echoes of [the dot-com bubble] today." — Tom Lee [13:50]

4. Expected Corrections & 2026 Outlook

[16:44]

• Correction Is Likely: Lee expects another significant drawdown next year – potentially up to 20% – but sees it as temporary, not the end of the bull market.
• Drawdowns as Opportunities: He likens this to previous years where mid-year corrections were followed by recovery and urges investors not to be spooked by volatility.

Notable Quote:

"I think we are going to have another miniature bear market next year, but then we’re going to recover." — Tom Lee [16:48]

5. Valuations, AI, and the "Wall of Worry"

[18:47]

• Three Years of 20% Gains: Ed asks if the recent high returns are unsustainable. Lee concedes some consolidation is due but points out there's less leverage/excess risk than prior bubbles.
• AI Valuation Debate:
  • Most Will Fail: Lee says only "maybe 5-10%" of AI stocks will be winners, but the overall basket can outperform, much like Internet stocks post-1999: "Even though 99% of the stocks went to zero… you still outperform[ed] the S&P 500." ([21:44])
  • Big Tech and Capital Intensity: He notes the shift from "asset-light" to highly capital-intensive for the Magnificent 7.

Notable Quotes:

"It makes perfect sense for someone to say a lot of the valuations for AI are probably absurd." — Tom Lee [20:13]
"It's probably gonna be fair to say 90% of the [AI] stocks are gonna be do way worse than people expected... but as a basket, it's probably gonna outperform." — Tom Lee [22:22]

6. AI: Bubble or Transformation?

[23:36]

• AI's Economic Necessity: Lee argues the expanding size and importance of tech isn’t just hype or a bubble. It reflects a structural shift—digital and AI investment is filling a labor gap due to demographics, similar to the rise of financial institutions as central to growth.
  • Historical analogies: tech cycles follow labor shortages ("third epoch... started in 2018 and ...will last to 2035" [24:01]).
• Valuation Comparisons: He challenges "bubble" proponents by comparing tech multiples to those of Costco and Walmart, pointing out discrepancies in narratives.

Notable Quote:

"Tech is becoming so central to the economy, especially because of labor shortage, that when we see tech intensity growing, people are flagging that as a bubble. Whereas I’m actually just pointing out it’s actually out of economic necessity." — Tom Lee [25:58]

7. Forecasting: Learning from the Past, Bet on Youth

[29:39]

• Lee draws parallels between skepticism about cell phones in the 1990s and skepticism about AI today. He notes that younger generations' rapid adoption will ultimately drive mainstream uptake and market value.
• Key Metric: Real credit card spending and innovation stems from the under-50 cohort — "young people are the ones who change the world."

Notable Quote:

"We have to think about how the 14-year-old’s using these models compared to us... the future change is coming from young people." — Tom Lee [33:31]

8. AI and the Labor Force: Technology Displacement

[36:40]

• Will AI Create a Labor Surplus? Lee acknowledges the anxiety but draws an analogy to the impact of frozen foods, which displaced 40% of farm workers in the early 1900s—yet ultimately created new opportunities and lowered food costs, leading to higher productivity.
  • "Frozen foods was really the key innovation that brought down the cost of food from 20% of the wallet to... 5 or 6% today." [37:24]
• Cycle of Destruction and Renewal: “Every technology thus far, it’s followed the cycle… we reinvent ourselves.” — Scott Galloway [39:40]

9. Is This the Late 90s Again?

[41:52]

• Not Quite: Both host and guest recall the late 90s, pointing out that markets now are defined by discipline, large cash balances, and enduring skepticism—unlike the headlong exuberance preceding the dot-com crash.

10. AI on Wall Street and Human Judgment

[44:38]

• Automation Is Not New: Wall Street jobs have always been subject to tech disruption—from traders to back office roles.
• AI Not Yet Superior: Fundstrat uses AI for data management and customer insights, but "none of the AI systems... have actually outperformed our own process for stock picking." ([47:00])
• Irreplaceable Analyst Skills: Lee stresses that forecasting is about navigating uncertainty, not just crunching data—emphasizing curiosity, conviction (over stubbornness), reading the market’s mood, and adaptability.

Notable Quote:

"I think the best qualities of a researcher ... are you do need to be unemotional, but you also need to know the difference between conviction and being stubborn." — Tom Lee [49:00]

11. Crypto & The October Liquidity Crisis

[53:47]

• Crypto Outlook: Lee continues to believe Bitcoin could double despite recent drawdowns, pointing to a potential break in the usual four-year cycle if it rallies past 125k.
• October 10th Crypto Crash:
  • Sparked by Trump-announced tariffs while markets were closed.
  • A “glitch” on one exchange de-pegged an algorithmic stablecoin to 65 cents, triggering forced liquidations across exchanges, dumping altcoins and wiping out millions of accounts.
  • Lee believes system upgrades will prevent this from happening again.
• Lesson: Crypto remains vulnerable to technical/mechanical glitches, but such events are not exclusive to crypto (citing negative oil prices during COVID).

Notable Quotes:

"That to me was a glitch because it was like an illiquid quote ... triggered a cascade of ADLs, and that led to millions of accounts being zeroed out. ...It won’t happen again, I’m sure." — Tom Lee [59:49]
"In 2020, the price of oil went negative. ...These glitches happen in all markets." — Tom Lee [61:20]

12. Opportunities & Sectors Lee Favors

[62:27]

• Undervalued:
  • Small Caps: Earnings growth but no money flows.
  • Financials: Becoming tech-like, with high digital adoption and AI use. Expect their multiples (PE ratios) to eventually match tech peers.

Notable Quote:

"I think financial companies are increasingly going to look like tech companies and their multiples may become more like tech multiples." — Tom Lee [63:39]

13. Being a “Perma-bull” in a Bearish World

[64:37]

• On the Label “Perma-bull”: Lee wears it as a badge, recalling how he was mocked in 2009 but ultimately vindicated.
• Why Most Are Bearish: Political polarization, traumatic recency from past corrections, and psychology are keeping most investors defensive.
• Long-term Optimism: He asserts innovation and US leadership in AI secures a bullish long-term view, noting the US will remain the least affected even if AI disrupts the labor market.

Notable Quote:

"Sixteen years later, what was the right call to be? The optimists have won." — Tom Lee [64:53]

Notable Quotes & Timestamps

• "Markets are bigger than us." — Scott Galloway [02:29]
• "Cash is trash." — Tom Lee [02:33]
• "Markets climb a wall of worry." — Tom Lee [13:33]
• "If you bought the Internet basket in 99 ... you still outperform the S&P 500 even though 99% of the stocks went to zero." — Tom Lee [21:44]
• "Tech is becoming so central to the economy... out of economic necessity." — Tom Lee [25:58]
• "Young people are the ones who change the world." — Tom Lee [33:31]
• "Every technology thus far, it's followed the cycle... we reinvent ourselves." — Scott Galloway [39:40]
• "I don't really find that many bullish people." — Tom Lee [43:50]
• "None of the AI systems ... have actually outperformed our own process for stock picking." — Tom Lee [47:00]
• "Conviction is basically riding through the volatility and it's not easy to tell the difference until history has already passed." — Tom Lee [49:40]
• "I think small caps are a whole group that professional investors can afford to ignore because no one else is buying them." — Tom Lee [62:34]
• "The optimists have won." — Scott Galloway [64:53]

Memorable Moments

• Scott’s Missed-Flight Story ([03:38]): Scott recounts a misadventure from his analyst days that inadvertently saved his friend’s life, serving as a lighthearted reminder of fate and focus.
• Frozen Foods Labor Disruption Analogy ([36:40]): Lee’s tale of frozen foods' impact on labor offers a rare historical parallel for current technophobia about AI.
• AI Is Not Infallible: Lee candidly asserts that Fundstrat’s own stock picks outperform any AI model pitched to them ([47:00]), reinforcing the value of human judgment.

Conclusion

Tom Lee remains one of Wall Street’s most prominent bulls — and makes his case in measured, thoughtful terms, blending historical analogy with skepticism about both excessive pessimism and irrational optimism. He expects volatility and corrections, but urges investors to see them as buying opportunities in a market transformed by structural tech adoption, AI, and the generational transition of risk-taking. The conversation is packed with practical context for navigating 2026 and beyond, while clearly capturing the tension between innovation, uncertainty, and human skill in markets.

Timestamps at a Glance

• [09:40] Why Tom Lee is bullish on 2026
• [11:12] Discussion on tech concentration ("Magnificent 10") and implications
• [13:33] Wall of worry: market skepticism vs. overexuberance
• [16:44] Outlook on corrections and recovery in 2026
• [18:47] Recent market gains, AI basket strategy, only ~10% likely to succeed
• [23:36] Tech as economic necessity, evolution of business models
• [33:31] Technology adoption is generational; youth drive change
• [36:40] AI's impact on labor: the frozen foods analogy
• [41:52] Comparing today to the late 90s: lessons and differences
• [44:38] AI’s impact on Wall Street roles and analyst indispensability
• [53:47] Crypto crash, stablecoin de-pegging, and lessons for markets
• [62:34] Small caps and financials as undervalued opportunities
• [64:37] Reflections on being a perma-bull, optimism vs. bear consensus