The Best Performing Stocks of 2025 | Animal Spirits 445

Episode Overview

• The hosts analyze the surprising market performance of 2025, focusing on the AI-driven "picks and shovels" theme and the resulting surge in electricity demand.
• They explore the historic underperformance of U.S. small-cap stocks, highlighting the record-wide profit margin gap between the largest and smallest companies.
• The discussion turns to the disconnect between poor consumer sentiment data and strong economic reality, questioning the validity of modern surveys.
• They examine the current state of cryptocurrency, the rise of private credit, and the philosophical debate between responsible financial planning and living a fulfilling life.

Key Concepts

• 2025 Market Review: Analysis of market performance, including silver's dramatic outperformance over gold and the best-performing stocks being "picks and shovels" suppliers for the AI industry (e.g., Sandisk, Western Digital).
• AI's Secondary Effects: The AI boom is projected to cause a massive surge in electricity demand from data centers, creating investment opportunities in power-related companies.
• Small-Cap Underperformance: U.S. small-cap stocks are experiencing one of their worst periods of underperformance relative to developed international stocks, with a record-high gap in profit margins compared to large-cap companies.
• Economic Sentiment vs. Reality: A deep skepticism towards the U.S. Index of Consumer Sentiment, which is at a 40-year low, with the theory that major crises like 2008 and the pandemic have permanently "broken" the link between public sentiment and economic facts.
• Crypto Apathy: The current cryptocurrency market is characterized by a lack of excitement and general apathy, where the narrative and interest are almost entirely dependent on price action.
• Private Credit Expansion: A growing trend of private credit firms purchasing consumer debt, including credit card debt and riskier "buy now, pay later" loans.
• Life Optimization vs. Experience: A philosophical discussion on the dangers of over-optimizing one's life for financial responsibility or data-driven metrics at the expense of living fulfilling experiences.
• Retirement Savings Success: A counter-narrative to the idea of a "retirement crisis," presenting data that 401(k) plans have led to a record number of Americans saving for retirement.

Quotes

• At 3:35 - "Get out of my face. Leave me alone!" - Michael Batnick gets comically frustrated when his young son, Kobe, repeatedly interrupts the recording.
• At 8:50 - "Those are the... do I have to say what those are? They're the picks and shovels." - Michael Batnick identifies the top-performing tech stocks as the essential suppliers for the AI boom.
• At 11:35 - "Should everyone buy utility stocks because all of our electricity bills are going to go through the roof because of this?" - Ben Carlson questions if the projected explosion in AI-driven electricity demand presents a straightforward investment case for the utilities sector.
• At 17:35 - "Matt has a chart showing that the profit margins for the S&P 100 versus the S&P 600... the spread is basically at an all-time high." - Michael Batnick points out the record gap in profitability between the largest and smallest U.S. public companies.
• At 18:21 - "How is it possible that the hyperscalers spent so much money on AI and profit margins still increased this year? That's kind of unbelievable, isn't it?" - Ben Carlson marvels at the ability of large-cap tech companies to increase their profit margins despite massive capital expenditures on AI.
• At 23:31 - "The 2008 crisis broke a lot of brains...and I think the pandemic like just shattered [them] in terms of this sentiment data." - Ben Carlson theorizes that major crises have permanently altered public psychology, making sentiment surveys a poor reflection of the actual economy.
• At 25:50 - "Bitcoin is the ultimate price drives narrative asset, more than anything else." - Ben Carlson argues that interest and stories about Bitcoin are almost entirely dependent on its price performance.
• At 32:27 - "I think those sleep things are totally bunk...It depends how you feel, not like what this thing tells you." - Ben Carlson criticizes the trend of over-optimizing one's life with tracking devices at the expense of experiences.
• At 43:38 - "Thanks to 401(k)s, the total number of workers with any retirement plan at all is at an all-time high, even accounting for population growth." - The hosts present data challenging the common "retirement crisis" narrative, highlighting the success of 401(k)s.

Takeaways

• Look for secondary beneficiaries or "picks and shovels" opportunities when investing in major technological trends like AI.
• Treat consumer sentiment data with caution, as it may no longer be a reliable indicator of economic health due to poor survey quality and lasting psychological shifts from past crises.
• For speculative assets like crypto, recognize that price is the primary driver of the narrative, not the other way around.
• Strive for a balance between responsible financial planning and living a fulfilling life, avoiding the trap of over-optimization that can lead to regret.
• The significant and historic gap in performance and profitability between large-cap and small-cap stocks highlights both the dominance of mega-cap firms and potential future opportunities in smaller companies if a reversion occurs.