How Long Will the AI Boom Continue? The #1 Question for Crypto Investors | Michael Nadeau

TRANSCRIPT

Ryan Sean Adams:
[0:03] Bankless Nation, a relevant topic for crypto investors at the moment. I think actually the most relevant topic, the most important question for us right now, how long will this AI boom continue? Are we in an AI bubble? What's going to be the outcome for crypto assets? I have Michael Nadeau from the TDR podcast and the TDR research on the episode today. And we're going to discuss this. Mike, how are you doing?

Michael Nadeau:
[0:28] I'm doing great, Ryan. How are you?

Ryan Sean Adams:
[0:29] I'm doing great, man. Hey, this episode really came from a discussion that we were having after we were done recording the TDR podcast last week. And you showed up this slide, which was Bitcoin versus NASDAQ, the correlation by year. You said that crypto has never been more correlated to the NASDAQ than it is right now in 2026. And we see right now crypto prices were kind of being pulled upwards, it seems, by incredibly strong TradFi market, in particular tech stocks have been booming. So is it like up 25% the QQQ since the, was it March or April lows?

Michael Nadeau:
[1:08] Yeah. Yeah, it was like March 30 lows or so. Yep.

Ryan Sean Adams:
[1:12] I mean, so all of this led me to believe in our discussion, we were talking about this, it just seems like crypto is being pulled up by the stock market, by the AI trade specifically, by the NASDAQ. And so if that's the case, if our future, at least right now in this current regime, is dependent on the AI boom, I think the most relevant question for us is like, is that going to continue? How long will the AI boom last? And you prepared some materials to help answer that question or look at, let's say, both sides of the equation here. But let's start there. I mean, do you think that is the most relevant question for crypto investors right now is kind of where's AI going to go?

Michael Nadeau:
[1:56] Yeah, I mean, you know, we're mostly focused on the crypto markets and the crypto markets have been in, we believe we're in a bear market on the crypto side. And really, the errors come out of these markets. We've seen this rally from Bitcoin since early February, which is corresponded with a major rally also, you know, in the Nasdaq over this period. There was some disruption in the Nasdaq prior to the big rally we started in early April. But yeah, I think if you're focusing on crypto right now, there's sort of like a narrative that's going that we've already bottomed and that we're going into the next bull market. And while this is playing out, we have, you know, an extreme sort of situation happening in NASDAQ and kind of the AI sector. And there's a lot of discussion around, is this a bubble, right? This is the big question right now. And if it is a bubble, what does that mean for crypto markets? And that's kind of the question I've been asking and why I'm doing some of this, you know, deeper research on the AI side of the equation right now and just trying to have a view on if that is actually sort of in the ninth inning of potentially, you know, this bubble scenario, which nobody knows. It'll be obvious in hindsight, but nobody can predict this stuff.

Ryan Sean Adams:
[3:10] I guess there's so many, I guess, mixed feelings when people use the word bubble. Some people say we shouldn't use it at all. It's kind of meaningless. What is a bubble actually? Others say, you know, you can use the term bubble. And by the way, bubbles are good.

Ryan Sean Adams:
[3:24] Somebody by the name of, author by the name of Bern Hobart came on the Bankless podcast. He has a book called Boom talking about the value of bubbles historically throughout history. Others use the term bubble as almost an insult. And they sort of have negative connotations when it comes to a bubble. So it's another way to look at it. But let's maybe be precise on the definition of bubble as we're going to kind of use it in today's episode. So when you think about a bubble in markets, what does it actually mean to you? What's the more objective perspective on what a bubble actually is?

Michael Nadeau:
[4:01] Yeah. And like you said, this is all, you know, everyone has their own definition and kind of when you're entering or exiting these periods. This is kind of how I think about it. You know, there's typically a breakthrough technology, right? This is kind of through the framework of Carlotta Perez's book, Technological Revolutions and Financial Capital, which is a fantastic book to read right now, I think, and how it's relating to what's happening in AI. It's a book that I was very focused on trying to understand how that's actually impacting the crypto markets and the crypto bubble as well. But you always have this introduction of a new technology that really captures people's attention. And there's usually broad acceptance that this thing is real. And we start to see, you know, a narrative start to form around how this is going to impact the future of business, the future of productivity, the future of efficiency, new business models, you know, different disruptions to various sectors of the economy. And so this starts to get baked into the sort of the psychology of the market, the narratives within the market.

Michael Nadeau:
[5:08] And if you start to see some interesting growth behind that narrative, which we are absolutely seeing on AI, we've seen the new models that are coming out. Each one is stronger than the last one. The earnings of some of these companies, we've seen Anthropic reporting just the growth and revenues that they've seen. So now, you know, this sort of.

Michael Nadeau:
[5:33] Is now being validated by growth and the numbers. So now you have sort of this reflexive movement on top of that. I think we're in that phase of this, you know, right now. At some point, typically, you get like the valuation detachment. And that's when, you know, maybe things start to get a little bit more wobbly. We're going to get into some of what's happening with the data out there. What's interesting right now is there's a big discussion around these growth figures and analysts are reporting, you know, forward growth is continuing to tick up for Q1, 27% earnings growth, which is just an incredible, incredible number. When you factor that into the price of the assets, the price of the assets can be rising very fast, which they are. But if your earnings growth is rising in line with that, then the PE ratios aren't blowing out the way you might expect. And investors can sort of, you know, kind of validate a bull thesis, even when, you know, valuations are really high. So we're seeing some of that start to play out. And this tends to happen with, you know, easy capital, lots of leverage, lots of FOMO.

Michael Nadeau:
[6:43] And the narrative just usually gets stretched too far. And we tend to overbuild. This is just something we've seen this in the crypto markets. You know, a new technology comes out. It looks like it's going to be a breakthrough technology. And then you have all these copycats rush in and they start building. There's tons of capital gets thrown at that sector. you tend to overbuild the capacity. We saw this in the dot-com era, which we're going to get into today. And that's the big question. At what point does this expectation of future growth, at what point does that story start to roll over? And we can kind of get into that. The data, the narratives, what we're seeing and all of the things and how this looks similar and also different from what we saw back in 1999.

Ryan Sean Adams:
[7:29] Okay. I guess the way you are grounding then this bubble word is through the lens of Perez's framework, who talks about in particular technology revolutions and how they go from kind of this eruption phase to a frenzy phase to sort of a turning point phase, a synergy and maturity type phase. And you've seen, I'm sure, and listeners will have seen, bankless listeners will have seen the hype cycle, you know, kind of this famous graph. It's really the exact same thing that Carletto Perez is talking about, right? Where you have kind of this trigger period, you have this inflated expectation horizon, and that's the top of the bubble. And then you have a deflation, trough of disillusionment, slope a slope of enlightenment, plateau of productivity, and it kind of goes on. And every major technology revolution has this. I mean, crypto has had maybe four of these, maybe five of these. The internet had this. The radio had this. Electricity had this. I think Perez talks about railroads in particular.

Michael Nadeau:
[8:37] Automobiles.

Ryan Sean Adams:
[8:38] 1800s, automobiles. Some industries have multiple of these kinds of cycles. But it's very clear that we're in one. The problem is you don't know where exactly you are on the slope here.

Michael Nadeau:
[8:50] Yeah, exactly.

Ryan Sean Adams:
[8:51] Like how close are we? Because for any major technology revolution, I mean, it seems like if you believe Perez's framework, and there's no reason not to, it seems to be almost always the way this plays out. We're going to hit a top at some point. There's going to be a period of time where expectations are just discordant with the reality on the ground, and we get way over our skis on this. We just don't know when that's happening, right? And when we're in it versus when we're kind of like traveling up it. Because there's no timeline, really, on the axis here. It's like, that's the unknown part is how steep is this curve?

Michael Nadeau:
[9:36] Yeah. And there's so many factors, you know, that play into this. What's happening, you know, broadly in the economy, what's happening with liquidity conditions, you know, there's what's happening, you know, on the political side of things and, you know, regulation and where that's going. So there's many, many factors. And I think that's why it's just so hard to predict, you know, how things are going to shake out. And we're not trying to like call the top or anything in this episode. We're really just kind of laying it out to then say, okay, you know, how should we be thinking about this? And we'll get to that at the end. But yeah, I think, you know, I think this is the right framework.

Michael Nadeau:
[10:10] And we're clearly in, you know, we had the eruption period, I think you could say that that was, you know, chat GPT coming out back in late 2022. There was obviously a lot of work that went into AI before chat GPT was released, but that was kind of the eruption. And I think, you know, you can make an argument that, you know, 2024, 2025 have been sort of the frenzy periods. And it feels to me like we're really pushing into like maybe later stages of that frenzy period.

Ryan Sean Adams:
[10:38] Later stage frenzy. We're definitely in frenzy. Later stage frenzy, possible, but who knows how long the later stage could actually last. You know, Nate Silver has an interesting model for this in his book, too. He talks about each technology having kind of a different order of magnitude, almost like a technical Richter scale. And sometimes you have like a six. That might be a technology like the mobile phone or something like that. Maybe the Internet was like a seven or an eight. Maybe AI is a nine. We don't know. We don't know if it's a six or a seven or an eight or a nine or how world shaking this actually could be. And so we don't know the slope of the line. We don't know how long the frenzy period will actually last. Could be months, could be years. And it all depends on what this technology is actually able to deliver. Let's take a look at some of the data because I'm hearing different investors right now say different things. Famously, Warren Buffett, he had some clips last week saying, you know, he's been in the market for 60 years. There's only been five years at which point he thought the market was cheap enough to buy. Right now, he said it's kind of operating a bit more like a casino.

Ryan Sean Adams:
[11:51] And Berkshire Hathaway is stacking cash. they've sold into this market the last few years. They've been net sellers of stocks. And then he'll look at probably a metric like this, which we have on the screen,

Ryan Sean Adams:
[12:04] which is the Shiller PE CAPE ratio. Let's talk about some of the data and try to get to a sense of how valued the current equities market actually is. So what does the Shiller index tell us?

Michael Nadeau:
[12:19] Yeah, this is the Shiller Cape ratio. So this is giving us like more of a view of the cyclically adjusted, you know, PE ratio. So it's taking the average of the last 10 years, and it's adjusting that for inflation. So, you know, it's trying to strip out, like, we just had this period, you know, where NASDAQ went up 25% or so over like five weeks. So it's trying to average that. It's not giving too much weight to like what's happening recently. It's trying to average that out over the last 10 year period. And so, you know, right now, when you look at that chart, we're at 42 or so. We're very close to where we peaked back in 99, which was right over 44. We are well, you know, north of where we were back in 1929. And we also, you know- North means higher.

Ryan Sean Adams:
[13:10] Right? So, 1929, we peaked what? This looks at like 33 or 34?

Michael Nadeau:
[13:15] 33 or so. Yeah, yeah.

Ryan Sean Adams:
[13:16] And right now we're at 42.

Michael Nadeau:
[13:18] We're at 42. So we're well past that. I mean, people were pulling this chart up also back in 21, where we had a big rally and we got to about just under 40 back in 21. So we're clearly like just from a very high level, like we're clearly at these like very elevator levels just from very high level.

Ryan Sean Adams:
[13:37] Oh, my God. So the only time in history Shiller PE has been higher was in the year 2000, basically the dot com boom. And it was only mildly higher at the time, 45 or something rather than 42 right now. And remind us what Shiller PE is actually telling us. It's a ratio of price to earnings or it's some sort of index of price to earnings, inflation adjusted?

Michael Nadeau:
[14:02] Yeah, it's the PE ratio of the S&P 500 based on averaging out the last 10 years and adjusting for inflation.

Ryan Sean Adams:
[14:10] When I look at this, I'm just like, how do you buy? How do you buy into this market? Yeah.

Michael Nadeau:
[14:15] It's tough. I mean, you know, this is the big question. We've obviously seen a lot of disruption, you know, within the technology sector as AI stocks have outperformed. We've seen SaaS stocks, you know, there's bear markets happening at the same time, which is sort of interesting. But from a broad perspective, you know, we're clearly, you know, in sort of what you might categorize as a bubble, you know, territory.

Ryan Sean Adams:
[14:40] Is it safe to say that when you look at this, you have to come away with a conclusion, which is stocks aren't cheap right now? Can you say that? I think so.

Michael Nadeau:
[14:48] Yes, I think that's correct. Yes. And that also means that if stocks are not cheap, then your forward returns are not great. You know, if you buy stocks when the P is over 20 or so, there's a lot of evidence to suggest that like your 10-year returns aren't going to be that great from those levels.

Ryan Sean Adams:
[15:05] How about revenue growth forecast? That's another dimension of this.

Michael Nadeau:
[15:10] Yes. So this is, I think, you know, this is an interesting thing to show here because I think the big narrative, and I think this is one of the things to really be paying attention to right now, are what are the narratives, what are the primary narratives from the bull side of the equation? And do those line up with what the data is showing? And so I think one of the big narratives out there is that, well, this is a little bit different today because from a few perspectives, one, the companies that are financing this build out, the big hyperscalers, these are extremely profitable companies. They're well capitalized. They were using free cash flows to build out the CapEx up until more recently. Now they're doing some debt financing. So I want to understand, like, is it true that, okay, yes, earnings are really strong and forward earnings are really strong. This is true. And this chart shows that. So even just looking at Q1, this is a blended growth rate for Q1 because not all companies have reported earnings just yet. So it's blending what analysts had expected for Q1 plus actual reporting. And we're at 27.7% right now. The big narrative is that this was not happening back in 1999. That is not true.

Ryan Sean Adams:
[16:30] So the big narrative is that in 1999, we had a bunch of fluff, unprofitable companies, Pets.com, no business model substance. You just had to launch a .com and then you could raise billions of dollars. But there was no revenue growth underlying it really, and certainly no earnings growth underlying it. Now, this time it's different. There is earnings growth. We're seeing this in earnings growth forecasts and the current reporting from equity companies. So this time is different from that perspective. That's the narrative.

Michael Nadeau:
[17:07] That's the narrative. And I think it's sort of a lazy, because a lot of people are looking, there was a lot of fraud. There were the pets.com and just like these domains that popped up and didn't really have a business model and got really high valuation. So that is true that that did happen. But what's not true is that earnings estimates were ramping up. The same way that they are right now. So their earnings estimate in Q4 of 1999 was the same as it is today.

Michael Nadeau:
[17:35] So there was actual, like the companies that were financing this were, they weren't the hyperscalers that we have today, but it was kind of similar. It was the big telecom companies. It was AT&T and Verizon, and they were spending, they were the ones spending the money. Those were profitable companies. They were ramping up everyone. Their earnings were looking fantastic. And so it was a very similar setup where the valuations were ramping up aggressively, but so were the earnings estimates for future forward earnings. So it's the same exact thing that we have going on today. Yes, you had all this extra froth in Pets.com, these other things, but the actual companies were strong that were actually financing this and they were reporting really strong earnings at the same time. So this is like, you know, this is a little different from what the narrative is out there. And you can see, you know, we have some notes just on the side here. So we're at 27.7%. Just to give you an idea of how high that is, the 10-year average is about 10.3% in terms of earnings growth estimates. The five-year actual is 16.4%. So we've been in a period here where we've been above average, and that just keeps ramping up.

Michael Nadeau:
[18:47] And you know again same thing happened back in 99 we were at the same level of expected earnings growth in Q4 of 99 which was right before the peak it actually went up a tick higher in Q1 of 2000 up to 32.7% in Q1 and then.

Michael Nadeau:
[19:06] When you talk to people that were in the markets at this time, we were, you know, I was not an investor and not even old enough to be participating in the markets at this time.

Michael Nadeau:
[19:18] But a lot of people say, like, you know, what broke it? Was there some catalysts? Like, how could that how could it just break? Because earnings were so strong. wrong you know people people will tell you like it's not a good idea to just wait for these quarterly earnings to come out and then just be complacent because it looks good because there wasn't really much that that broke it at the time it just kind of started to roll over and then the narrative start to shift so it was really price that led not fundamentals and I think that's the most important takeaway this is something we focus on in the crypto markets that price leads fundamentals. And we see this same thing also happen with crypto investors, where you get into a bull market in crypto, on-chain activity ramps up, the price to sales ratio of Solana was coming way down as the valuation was going way up last cycle. So if you start to extrapolate that out, you can tell a story about why this valuation makes sense, but you're using the peak activity on chain to extrapolate out. The question I have is like, okay, if these are real earnings, right? We're not saying they're not real earnings. The question is like, can you, can you extrapolate out from there? And we'll get into like, where is all this coming? We've got some flow charts to show kind of where the money is flowing through.

Ryan Sean Adams:
[20:40] I think that's a really subtle point and a really important point as we look at these markets. Let's grab some more data though, before we come to some conclusions here. So here's a chart of forward PE ratios. There's another chart of S&P 500 forward profit margins. What are these data sets adding to our story?

Michael Nadeau:
[20:58] Yeah. So the 4P ratios right now, if you look at like the MAG-7, it's, you know, 26.7 or so. If we look at the large cap S&P 500, we're about 21. So this is not like insane. You know, we've seen higher valuations. And the reason is because the E is just going up just as much as the price, right? If the earnings keep going up and the price is going up at the same time, the ratio is basically going to stay flat.

Ryan Sean Adams:
[21:29] I see. So this is a breakdown of forward PE ratios again and showing these vertical bands, I guess, indicating down markets, bear markets, maybe recessions. I'm not sure.

Michael Nadeau:
[21:45] Yeah. So the pink ones are S&P 500 bear markets and the blue ones are corrections. So corrections 10%, bear market 20%.

Ryan Sean Adams:
[21:54] All right. Very good. And the breakdown, the reason we have different lines is there are different segments of the S&P 500. So you've got MAG7, you've got large cap, you've got mid cap, and you actually have S&P 600, some small cap as well. And so you see kind of, I guess, different indicators here. Now, on this chart, different than our Shiller PE, on this chart, we're actually not seeing... All-time highs. I guess for MAG7, MAG7 is doing pretty well, but it was higher in 2021? Is that right?

Michael Nadeau:
[22:28] Ford PE? That's right. Yes. Because the earnings weren't as strong in 21. That's the key here is the earnings.

Ryan Sean Adams:
[22:35] I look at this chart and I don't see anything. It doesn't look crazy. I mean, the Shiller PE looks crazy. That looks like you're buying the top of your buying right now. This doesn't look that bad. And you're saying the reason is because earnings are really keeping up, like the earnings are actually being shown in the reports and kind of the financials right now.

Michael Nadeau:
[22:57] Exactly. And so if you're bullish, and you're saying this is not a bubble, like, look at these earnings, valuations are not, you know, we're below, we're significantly below where we were in 21. You can sort of make the argument that, hey, look at all these earnings, like this is not a bubble. This is just like, you know, the market's just really hot. And this technology is incredible and all these companies are implementing the technology they're spending so you can make the bull the bull argument i think based on based on this the question but going back to what we were just talking about what is the leading indicator if you're focusing on earnings, and you're waiting for it, and you're going to say, okay, well, I'm bullish. All the earnings reports are coming out really strong right now, and I'm going to just wait until Q2 on that. That is the key thing. Is price following fundamentals, or are fundamentals following price? We know in crypto, it's price that is a leading indicator.

Ryan Sean Adams:
[23:53] I think probably in all hype cycles, res framework, frenzy territory, price is going to... Lead and then fundamentals are going to follow. That's probably going to be true here. I know you've got some slides where we're going to look at the particulars of how that might work in this market. Let's get to this. S&P 500 forward profit margins. Is this a similar story?

Michael Nadeau:
[24:17] Similar story. So again, this feeds the narrative of the power of AI. It's creating efficiencies, it's creating productivity, it's driving these forward margins are rising. So we're at about 15.3% right now. That's the highest we've been since in the history of this chart going back to 2004. Again, this was also... True back in 1999, where margins were actually rising as well. And we got up to about 12.2%. So not as high as we are today. But this chart's here just to show that if you're making the bull case, this is part of that. Margins are improving. Earnings are improving.

Ryan Sean Adams:
[25:02] This looks like a bull case could be like, this looks like the AI boom productivity miracle here, right? We get increased margins for everybody because AI is automating things away.

Michael Nadeau:
[25:11] Right. And the question I have on this piece of it is like, we haven't really seen any studies, or at least I haven't seen any studies on the companies, the S&P 500 companies, the large enterprises that are implementing open AI and they're implementing Anthropics Enterprise products. They're spending a lot on this right now. We have not seen a study come out to say that, you know, showing that they know for a fact that the spend that they're putting in there is... Is equating to two employees, right? That's basically what this has to do if this is going to be durable long-term is all of that spend. Like if you think about a large insurance company or something, Traveler's Insurance is implementing this internally into their systems right now. A massive company spending a ton of money. Most of that's going to the companies like Anthropic. Now, what could possibly slow down the spend that they're putting in is like if they start to do study, they start to say, well, wait a minute, we're spending like crazy and we feel like we're just in this rush to do it because everyone else is doing it. What happens if the studies show that maybe the ROI is not as good as they thought it was going to be?

Ryan Sean Adams:
[26:31] But isn't that getting priced into this? Like, you know, if I'm looking at for profit margins, isn't that basically showing what you just said that, oh, these companies must be adding AI, incorporating AI and becoming more productive, becoming more profitable? I mean, if it was costing more than it kind of like brought in, you'd see margin compression, wouldn't you?

Michael Nadeau:
[26:52] You should. Yeah. So if the margins are increasing, it's a good thing. We just don't know if that's like 100% driven by AI. We don't know exactly what's driving that because, like I said, I haven't seen the studies. I think we're kind of in the process where this is starting to be implemented. But I don't know, like, at what scale it's, like, really impacting. We know the margin improvement. We just don't know, like, it's not clear to me if that's, like, definitely AI just yet.

Ryan Sean Adams:
[27:18] What else would it be?

Michael Nadeau:
[27:21] I don't know. I don't know. Not hiring. We haven't seen really any hiring over the last year. So if your revenues are growing and you haven't hired, your margins are going to improve there.

Ryan Sean Adams:
[27:31] But isn't part of the bullish story that they're not hiring because they're able to backfill with AI? I mean, you look at kind of like some of the layoffs that we've seen,

Ryan Sean Adams:
[27:38] even crypto Coinbase laying off 14% of its workforce. Brian Armstrong says they were doing this because of the cycle and also, and, you know, trading volume down, all these things. And also because we can, you know, replace some of these jobs with AI effectively. That at least is the narrative.

Michael Nadeau:
[27:57] That's the narrative. I think there's definitely probably some truth to this. But I also think it's kind of a, you can use AI to, you know, maybe Coinbase was going to have to do layoffs anyways. And then they can say, well, we're restructuring our internal systems around AI and stuff. And we think this is going to be the way to do it. So I think there's probably a combination of productivity and it's an excuse, you know, they can sort of say, hey, we're going into a new world and we're implementing AI. So we'll see. Like to me, I don't know. I don't know. I think we need more time on this to know for sure. But when I think about like what would, if you were trying to figure out what would sort of change the narrative, I think it would be something like this where people start questioning the spend and whether or not there's real ROI on the other side of that. For me, as somebody, you know, running a small business, it's definitely making my life more efficient. And... I can see a path where we can just do more and not have to hire behind that. I think that's.

Ryan Sean Adams:
[28:54] The same for me is I see it in spots sometimes, but I don't always see it. And I'm not sure how much I can actually automate in the things that I do day to day versus how much I'm just kind of spending tokens and it's not leading to actual productivity gains and kind of revenue increases. Anyway, let's continue this story. So the short term looks frothy, of course. So we have a 26% move on the NASDAQ over five weeks. So, I mean, you say this is historic, historic 28-day trading, trading day? Has this ever happened?

Michael Nadeau:
[29:34] Again, so trying, you know, this is just me zooming out, trying to put this in perspective, like, you know, how many times has this happened in history? And like, what were the circumstances is that it happened. It's happened a total of eight times going back to 1971. And if we kind of just go through these, so back in 1991, we had a 26% rally over a similar number of days. That was after, that was coming out of a cycle low. So I'm trying to understand like what was the context of these rallies? That was out of a cycle low.

Ryan Sean Adams:
[30:06] So that wasn't a technology revolution. That was just cycle low, recovery basically.

Michael Nadeau:
[30:11] Recovery rally basically, mean reversion rally. And we had another one in 1998. So this was kind of like earlier in the kind of like AI bubble. This was also coming out of a correction. So kind of early cycle move back in October of 1998. And then we had the big late cycle melt up. October 27th, this was Q4 of 99. That was a 28% rally. That was the late cycle kind of melt up. And then you had the bear market rally in January of 2000, 30% rally that was kind of coming out of some of the lows. And we had another one, another bear market rally in 2001. So now you're in the sort of like wealth destruction phase and you're getting some of these kind of bear market rallies. And then the other two were coming out of the lows from 2009. And then we had the big sell-off, COVID sell-off, and we had a big rally, a V-shaped rally coming out of that. So the takeaway for me, I think, is just these tend to happen like coming out of like a mean reversion after a correction is like one way these tend to happen.

Michael Nadeau:
[31:24] And then they tend to happen at like the top. Right. So possibly possibly that's what we are.

Ryan Sean Adams:
[31:31] So, OK, so as I look at this chart, this is really fascinating. All of these are mean reversions, after cycle lows, except for the three that happened during the tech revolution of dot-com. 1998, you said, a plus 32%. 1999, December, a plus 28%. And then the final blow off top in March of 2000, a 30%. So there were three. There were three in dot-com.

Michael Nadeau:
[32:01] Yeah, yeah, it's true. Yeah, yeah. Yeah.

Ryan Sean Adams:
[32:03] So like this could be, I don't know, the first or the second.

Michael Nadeau:
[32:07] We could be early. That's the challenge. I think this is the challenge. We could see another 30% move. Maybe we have a little 5% correction and then another 30% move. I think this is the, challenge of being in a bubble. And I think if you're a trader, you probably love this, right? Traders probably like this. There's more volatility. You can make kind of short-term bets. And I think if you're a long-term investor, it's a little bit trickier to navigate.

Michael Nadeau:
[32:35] But yeah, I mean, this is kind of the, I guess if you zoom out on this, To me, it's either the final blow-off or it's just like we're in the final blow-off and maybe we have another one to go.

Ryan Sean Adams:
[32:48] Yeah, so guys, we could either be in 1998, 1999, or 2000. We're not sure. We're not sure, but we're in one of those probably. And it probably is going to, because of a technological change, it probably is going to blow off top. I mean, that's pretty much a given at some point in time, whether it's this time or the next one or the one after. Uh concentration levels this was a fascinating metric i saw this all over my timeline on uh on twitter so peak concentration levels of major bubbles anytime you get over 40 percent of what some sort of concentration metric i guess when you had the nifty 50 run was that in the 1960s, you had 40%, Nifty 50 were 40% of the market. When you had Japan going crazy in the 1980s, it got up to 44% of the total world market. When you had railroads back to the 1800s, that got up to 63%. That was the mother bubble of all bubbles. Right now, we're at 40%. And that's measured by the big 10 AI companies as a percent of S&P, they dominate. They have 40% of S&P. When I look at this data, though, I can't tell if they're just kind of picking some data sets to tell a concentration story because these aren't really apples to apples comparisons. But what do you see when you look at this?

Michael Nadeau:
[34:11] Yeah, this is really just like a high level to understand the concentration in the market, how that lines up with other periods where there were bubbles. And we've known this has been going on for a while. The MAG-7 really led most of this rally. What I'm starting to pay a little bit more attention to now is.

Michael Nadeau:
[34:32] You know, we saw this 12% correction or so in NASDAQ in March, and we've seen the big 25% move coming out of that over the last five weeks or so. What's sort of interesting to me is that MAG7, there's not like full leadership amongst MAG7 in that move back to all-time highs. So only four out of the seven, so still more than half of them, are now back to all-time highs. but you still have a few of them that are not participating. When things broke down back in 1999, that's kind of what it looked like is you had like this broad, you know, leadership amongst the winners and then like a few fell off and then a few more fell off. And then there was like one that was still like kind of everything was concentrating around. So I'm kind of paying attention to how MAG7 is performing.

Michael Nadeau:
[35:24] We've got a chart in here just showing like equal weight. And this is not back to all time highs of the S&P 500, which is interesting because the S&P 500 is back to all-time highs, and it's sort of showing you that there's not like broad breadth, broad participation. So last Friday, the S&P 500 closed 7.7% above its 50-day moving average, but only 52% of the components of the S&P 500 finished above their 50-day moving average. In the past 30 years, the S&P 500 has never had fewer than 55% of its components above their 50-day moving average when the index was at least 7% above its 50. So it's kind of just, you know, it's a little odd that the index is back to all-time highs, but MAG7, not all of MAG7 is not, and you're not really getting this broad participation from the rest of the market, which tends to align with like kind of bubbly type periods in the past.

Ryan Sean Adams:
[36:22] I see. And I guess that's because the leaders, the ones that are pulling ahead, are embracing more of the narrative story and kind of the price story as well. The story around AI exuberance that the market really wants to hear.

Michael Nadeau:
[36:37] And like of late, we can go a few of these stock charts. I mean, just looking at like Sandus, like some of these memory stocks. Oh, that's true.

Ryan Sean Adams:
[36:45] Yeah. So Intel from April 1st up 200% Intel? Intel.

Michael Nadeau:
[36:51] These are, it's a big business. This is not a penny stock.

Ryan Sean Adams:
[36:53] Intel has like traded flat for like 10 years or something, hasn't it?

Michael Nadeau:
[36:56] Right, right. So, you know, this is a big business. It's not a penny stock. It's up 200% in five weeks. That's a huge, huge move. The memory stocks we've been seeing just absolutely rip as well. Like SanDisk is up 540% year to date, which is pretty wild. You know, we've seen Micron, another memory stock, you know, up 130% or so since April 1st. So, you know, this is where the bubble is starting to concentrate in different parts of the AI stack.

Michael Nadeau:
[37:31] We've seen Mag7 a little bit, you know, less participation there. And, you know, the rest of the market is kind of lagging behind.

Ryan Sean Adams:
[37:39] Let's talk about in more detail maybe the mechanics. Yeah. Of today versus the dot-com bubble. So when you look at the AI money flow today, where is all of the money coming from? I mean, it starts with demand, doesn't it? Like your demand for tokens, AI tokens, my demand for AI tokens, large companies demand for AI tokens in an interface like Claude or ChatGPT or some agent somewhere. That's where it all starts. And then what happens? Yeah.

Michael Nadeau:
[38:14] So, you know, all that demand, you know, and I think 80% of Anthropix revenues are enterprise revenues. So almost every major company is integrating AI into their systems. They're doing this, you know, they're not just using these things, they're integrating that inside like a sort of walled garden within their businesses. Basically, what I think is happening is everybody is rushing to integrate this right now. They see the potential for this technology and how it can help them improve margins, improve efficiency. So everybody's rushing in. That's, you know, subscriptions, APIs, software. All that's mostly flowing to the models and the application layer. That's open AI. That's anthropic. That's perplexity. So most of that's going into those companies. This is where things get interesting. Those are the businesses that are not profitable, right? We know that Anthropoc is scaling revenues aggressively. I can't remember what the latest that they reported is, but it might have been a $30 billion annual run rate that they've already achieved, which is incredible.

Ryan Sean Adams:
[39:24] Yeah, I think I've got some numbers here just to take a peek at. Like, look at this right here. Anthropics Extraordinary rise from December 2022, $10 million in revenue, all the way to May 2026. This is annualized revenue. We went from $10 million to $45 billion on this chart. $45 billion, yeah. This is log scale.

Michael Nadeau:
[39:47] Okay. Yeah. That's an insane ramp. All right. So this is feeding the narrative right there. Everybody is plugging into them right now. And so that's where the cash is going. They are spending on the hyperscale, right? So then they are spending money with the cloud providers, right? This is Google, this is Amazon, this is Meta to some extent. So that is going there. So then when those companies report their earnings, everyone's like, oh my God, look at all the revenue that they're producing. But they are also, there's a little bit of like a circular thing going on where some of those companies are, you know, investing in OpenAI and Anthropic. And then they're paying them, you know, revenue. So there's a little bit of a circular thing going there.

Ryan Sean Adams:
[40:33] I just saw, was it last week or the week before, you know, Anthropic was basically out of compute and XAI had over-provisioned. Elon made all these data centers, but their model wasn't as used as Anthropic. And so Anthropic cut a deal with XAI to just tap into their hyperscale resources so they have the compute. So there's a lot of allocation, let's say, to the leading apps where the demand is actually taking place.

Michael Nadeau:
[41:02] Interesting. That's really interesting. So, yeah, so right now, like, the demand is there, I think, is very clear. The demand is there. So if we just keep following this, so then the hyperscalers, right, where is their cash? They're spending on chips, right? NVIDIA, data center build-outs. So then the capital is flowing to those types of companies. What's NVIDIA spending its money on? It's spending its money on TSMC, all the things that go into those chips. Most of that capital, I think, is leaving the U.S. and going to Asia, where a lot of those chips are manufactured. So this is kind of the flow of capital. And it all starts that the only thing you really have to understand here is like that this first step is the demand um and where is that coming from i think every time a new model comes out we just you know mythos came out kind of blew everyone's expectations away and then that maybe creates even more demand for for the next new model um so as long as that stays there, And this sort of FOMO driven like race to implement these solutions internally within these large businesses, as long as that's there and they feel like they're getting ROI on that, that I think this can continue. But it's sort of a Goldilocks type setup where like, what if there's a destroy? You know, we know there's other risks in the economy.

Michael Nadeau:
[42:29] What if China comes? We know China is building out lots of these models. What if they introduce a model that just is way cheaper, you know, to use than some of the stuff that's already out there? So, you know, you just got to kind of think about like, what would break the demand? Is there some change in the technology that could potentially come? Is there some unexpected thing with, return on investment that people aren't projecting, that would, you know, potentially reduce some of that demand at step one. And then that's what would make the sort of CapEx investment and everything else look like it was getting frothy and maybe overbuilt. I don't think we have signs of it being overbuilt just yet because the demand's there. And there's like so much demand for the compute itself that there's no like, I don't think there's a glut of supply here just.

Ryan Sean Adams:
[43:15] The demand is there because the models and their capabilities just keep on getting better. I'll tell you just my own experience. So a year ago at this time, I was probably subscribed to maybe two models, $20 a month. So my spend was $40 a month, let's say. Now you fast forward to today, over the past month or so, I probably averaged about $50 a day, maybe, in terms of token model spend. And that's just because the tokens have become more valuable for the research and work output that I'm producing. And so my demand has continued to ramp up and it will continue to ramp up until they stop being as useful or I suppose they get a lot cheaper. So I'm sure that's just a microcosm of what every person is doing, every company is doing. And it all depends on how useful these AI tokens actually continue to be.

Michael Nadeau:
[44:15] Yeah, I agree. And then, you know, what's the next phase of demand potentially? You know, we should start to see more sophisticated agent type products come out and start to really start to do more stuff. So we'll see. I think the real important thing is like the models have to keep improving and keep getting people excited.

Michael Nadeau:
[44:35] And then, you know, obviously the demand just has to be there and if that continues, then I think this can just keep going, you know, for a while but we know that like.

Michael Nadeau:
[44:45] Just to me, the reason these types of cycles rhyme is just more related to like human behavior, FOMO, chasing things, chasing narratives. And like there's usually just not like a clean sort of like adoption to these things. It tends to be lumpy kind of all at once. And then and then we have to sort of reset. I think that's why Carletta Perez's framework has largely held for almost every major technological advance and that we just we throw too much capital at the problem. We waste a lot of capital. There's some sort of a reset at some point. And then you kind of go into like the golden age of the technology. It would be very rare, I think, to just not have a reset at some point. And that's like, I think, really hard to project because there's an element of this that's actually, related to geopolitics and just positioning. We're kind of in a race with other countries in terms of security, national security, all of these implications. And you have to factor in what does that mean for policymakers? And are we allowed to have a correction this time? Are we allowed to have the reset this time? And is it possible that we don't

Michael Nadeau:
[46:00] because it's such a national security concern at the same time. It's a lot to factor in here, but I think hopefully this just kind of lays out what's really going on under the hood and why it's working right now.

Ryan Sean Adams:
[46:11] How similar is this in your mind to the way the capital flows to the way .com worked? Or how similar versus different is it maybe? The AI boom versus the .com boom?

Michael Nadeau:
[46:25] So it's very similar. So this is a graphic kind of laying out .com. So it's very similar. It's So step one is the, you know, end demand. So every household business at the time was moving online. And the main thing that was being built out at that time was bandwidth. So you had the telecom companies, AT&T, Verizon, building out the CapEx for the fiber optic and all of the bandwidth that then households and businesses were demanding. And then you had the dot coms and the telecom customers that were, you know, So that's where a lot of that capital was flowing in the early days. What happened here was, you know, I think everyone knows this story where we too much investment went into the infrastructure, the sort of the fiber optic cabling was kind of a commodity. Too much went into that. We overshot the amount of demand that there was going to be in the near term.

Michael Nadeau:
[47:20] Obviously, the Internet was a really important thing. It still is today. And it was not the bubble was very real, but we just sort of overshot it. And that's the human behavior kind of element of this, I think. And the question is, Is that same setup in place today? And if you're a bull and saying, no, no, this is not a bubble, you would just point at the demand and the fact that we can't, people can't get their hands on enough compute. So there's no glut. There's no, and maybe until you see that happen, you know, You know, you can just continue to be bullish, but I don't know if like, I don't know if there was like a glut before the market started to sell off and if it was more just the price just sort of led, you know, prices started to break down. We got too overheated. And then because of that, then demands, the reflexivity of that, all of a sudden people are less bullish and there's just less demand. And so I think it's very similar. The key question is like, we overbuilt bandwidth last time. Are we going to overbuild, you know, with data centers and access to compute this time? And right now we don't see evidence of that. But it doesn't mean that it can't change.

Ryan Sean Adams:
[48:29] I mean, as you say that, as we're looking at the numbers here, it seems like the answer to that question is like, yes, of course we're going to overbuild. Of course we're going to overprovision. We always do when these major technological innovations happen. The only question I suppose for those in the market right now and for investors is like, have we done that yet? Like, when will that happen? And so it's kind of back to the question of, is it 1998? Is it 1999? Or is it 2000? And if you don't know, because none of us do, really, if you don't know, then how do you position yourself? Yeah. Maybe we could start to get into the positioning that investors should consider under these current conditions.

Ryan Sean Adams:
[49:13] So how are investors positioning right now? Is it primarily bullish? I mean, they're not doing the Berkshire Hathaway play, it seems like. Most investors are pretty well to fully deployed as part of their mandate. Is that correct?

Michael Nadeau:
[49:29] It seems that way. If we go back to late March, when things were kind of heating up with the Iran war and markets were starting to roll over and sell off, there was a ton of hedging that had come into the markets. And... What we've seen since that period, and I think that's part of the reason why we didn't come down as much, but what we've seen since then is the hedges have come off. Retail call options have been exploding. We recently hit 9 million contracts on a five-day average. At the peak of 21, we were about 6 million contracts, and we've gone up three times.

Ryan Sean Adams:
[50:08] Is this a good index of retail demand? Is that what this is?

Michael Nadeau:
[50:12] Yeah, because it's, you know, retail calls versus puts are, so calls, people going long are 2x calls versus puts. So it's telling me that like retail, since, you know, we hit those lows in late March and we started to reverse, like there's been a very reflexive move in terms of retail getting back into the market. And then sort of like just a mechanical thing where hedges come off, transaction volumes are lower. There's been some other technical stuff with like CTAs and just mechanical buying that has to happen. And that's happening in like kind of a low volume environment. And so I think this has played into this big, you know, move that we've seen of late. And, you know, like we were talking about earlier, like this could be it. It could maybe we just sort of kind of calm down for a little bit and then we have another, you know, big move. Impossible to predict. It'll seem obvious, you know, in hindsight, you know, but I think this is something to keep an eye on. Just like this is the positioning in the market right now. this next chart just shows the VIX has come off so we had a big rally and.

Michael Nadeau:
[51:27] Hedges have come off, and it looks like markets are becoming a little more complacent. Again, they were not very complacent back in March. We're getting a little bit more complacent. And then we can look at credit spreads as another way to just look at access to capital, right, for businesses out there. It's pretty easy to get a loan. So markets look complacent. We just had a 25% move. We think we're, you know, in some type of a bubble framework here. We don't know. You know, it's hard to say, but the markets are kind of complacent at this stage.

Ryan Sean Adams:
[52:05] When dot-com ended, how did it end? Were there any signs aside from the markets going crazy, the frenzy, the euphoria, the massive price gains, you know, multiple times? You had three separate 30% plus whatever, 30 to 45 day events. Besides all of those things, were there any signs and how did it end?

Michael Nadeau:
[52:28] Yeah. You know, you had the extreme concentration, you know, at the top, which we showed, you know, 40%, 40% or so for the leaders. And that started to break down. So that's one thing to keep an eye on is the concentration. we talked about how only four of the seven mag seven have gotten back to all-time highs on this latest rally. So that rhymes a little bit with what we were seeing. Lots of dispersion, right? There was tons of dispersion when you got into the frothy zone where things are up a lot. Also, things are falling a lot. We've seen this disruption with a lot of the SaaS stocks out there. You had a restrictive Fed back then. The Fed was actually hiking rates into like what seemed like a kind of overheating economy at the time. So they started hiking like mid-1999 or so. So the Fed was not like loose. They were hiking into this.

Michael Nadeau:
[53:29] And when you hear people talk about what it was like to invest at the time, I don't think there was some like, catalyst that caused the prices to just kind of start to not go up anymore they just kind of stopped going up and then eventually once you got into like march 2000 um there was there was like some concern around a recession in japan um there was a microsoft was dealing with an antitrust lawsuit i think that started to shift the the markets like the narrative in the market at the time um and it kind of just it just broke the risk on you know kind of sentiment out there i think, and nasdaq ended up dropping about 78 from march of 2000 through october of 2002 you know we had a very like i'm not even sure if there was it was if we had a recession it was a very mild recession so you know this didn't like cause like a 2009 you know style style um recession but we took the froth out and i think a lot of that was ipos that had happened and like sort of we talk about you know token unlocks in crypto right in a bear market you don't want to be in an asset that's sort of unlocking and there were tons of that happening. So this is something to pay attention to with like MAG7, for example.

Michael Nadeau:
[54:42] A lot of the MAG7 is not able to do buybacks right now because they're using their free cash flow to invest in capex. So that is a shift. If you have some big IPOs coming, we're going to see similar kind of unlock type period at a time when there's less buybacks happening in the market. So I think that's something to pay attention to. That sort of lines up a little bit with with dot com um so i think you know pay attention to the structure out there pay attention to the leaders and sort of you know the equal weight s p 500 has not gotten back to all time times if we don't see more participation from the rest of the market i think that also lines up with what we saw in dot com so yeah it's a lot of factors but um definitely something to keep an eye we are more focused on the crypto markets and how that is sort of.

Michael Nadeau:
[55:28] Interplaying with what we're seeing in TradFi. Crypto has had a pretty big rally here. Bitcoin's had a 35% move or so since early February. And we're at a really interesting inflection point on the crypto markets. And so that's where I'm spending most of my time and just really trying to understand if this rally continues in NASDAQ and S&P 500, is there a chance that they're just going to pull the crypto markets along with it. And I think that's the big, the big unknown. Typically, Bitcoin actually leads the NASDAQ. So when we look at Bitcoin correlations, we talked about how it's most correlated during, during bear market years, we are at the highest correlation point right now in 2026.

Michael Nadeau:
[56:16] And Bitcoin tends to lead the market here. So that'll be interesting to see if Bitcoin rolls over, it's at its, Right around its 200-day moving average, which can be resistance in a bear market. So we'll be keeping an eye on that. If Bitcoin breaks down, is that a leading indicator for NASDAQ and the TradFi side?

Ryan Sean Adams:
[56:36] So if you sum all this up, I'm kind of hearing, maybe I'm reading between the lines, but of course, can't tell whether this is the top or not for NASDAQ. Definitely stocks are not cheap at this time. But we could be in a period like 1999 where there's still greater gains ahead and blow off tops. And it's always painful to be out of the market when that happens. Now, I know you're not an active investor in the stock market. You're more looking at the stock market in the context of the moves that you want to make in crypto. So let's say it's like 1999 and there's still more growth ahead for the stock market. Where do you think crypto goes? So let's say the market goes up and then crashes. Does crypto get pulled along with it? And then do we have to reestablish ourselves in a new regime? Like, I guess maybe sum this up in terms of how you're playing it on the crypto side.

Michael Nadeau:
[57:39] So, yeah, we've never invested in the crypto markets through, I guess, a sort of bubble type setup, you know, in NASDAQ. I guess, you know, 2021, we had some similarities there. And yeah, I mean, I think the best thing you can do is understand the relationship between, you know, Bitcoin and NASDAQ. We know that it's moderately correlated it tends to be more correlated in bear market years you know my the way that I'm playing this is you know my exposure to, The TradFi side of things is like an index funds and I'm just kind of like, you know, I'm not like selling anything. I'm just kind of letting that letting that play out. I think what you can do if you think you're in a bubble is just try to stack cash and keep an eye on things.

Michael Nadeau:
[58:25] We like to invest when we think things are, it's a fat pitch and things are oversold and those opportunities, I think, I'm not seeing that on the crypto side in terms of Bitcoin right now. We're kind of expecting things to potentially roll over. And if that starts to happen and NASDAQ just keeps doing its thing, I think we need to say like, you know, the crypto markets are just going to do their own thing. And this is one of the things I like about the crypto markets, right? So one of the best things about crypto to me is like, yes, we have, there's bad things that can happen in crypto markets, but they're free markets, right? There's no like, there's nobody in there doing stuff that you can't, you know, that you feel like is just against you. And I think on the traditional side, like every Trump tweet, you know, if you're trying to play these markets and you have somebody just

Michael Nadeau:
[59:19] kind of tweeting stuff out that might not even be true, but the market responds to it. We know that there's the fad has been sort of juicing the markets a little bit here. We think there's been some, you know, there's been releasing of oil reserve. There's a lot going on that you don't control, at least in crypto. It's just a market. And maybe there's people doing things, but you can see it and you can you can just kind of navigate that yourself. The thing that frustrates me on the TradFi side is just there's just so many other things and so many other incentives and things at play. And maybe that's how we see this shake out where crypto markets are just going to be independent.

Michael Nadeau:
[59:54] And maybe this bear market just kind of plays out like we would expect a typical bear market to play out. And on the traditional finance side, it's just a lot more complicated with all these other incentives at play. So we'll see. Like, I wish I could give you a real concrete answer. But every week we are updating the DeFi Report readers on market structure and exactly how we see things playing out in the crypto side. I think it's a really interesting time to be focusing on crypto. We're at a really interesting inflection point right now.

Ryan Sean Adams:
[1:00:26] Yeah, I know you and I have been talking on the weekly TDR podcast about sort of this battle between the bears and the bulls that's going on right now and who's going to win. And so we're in this interim period. I think you're like about 50% deployed into crypto and 50% dry powder on the sidelines and waiting for the market regime to reveal itself further. So this has been great, Mike. I will say for Bankless listeners, if you're not following the TDR journey on the TDR podcast, you should go subscribe to that because we are going to be releasing a new episode on Wednesday. This comes out every Wednesday. We go through the market cycle so you can get an up-to-date on the way Mike is playing it and how he thinks the market cycle looks.

Ryan Sean Adams:
[1:01:09] So make sure you're dialed into that. There's a link in the show notes. And I got to end with this as we always do. So none of this has been financial advice. We don't know where the NASDAQ is going, nor crypto prices. It's all risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.