What's Behind The Selloff In Crypto, SaaS And AI Stocks

Summary Artificial Intelligence stocks and crypto just got rocked - and the bounce since then hasn’t exactly inspired confidence. In this episode, we sit down with Michael Lee of Michael Lee Strategy and Merlin Rothfeld of the Trading Academy to unpack what’s really behind the recent turbulence. We break down the liquidity squeeze hitting markets, the surge in AI capex, and why SaaS and software names are suddenly under pressure. We also dig into Bitcoin’s pullback, the crypto shakeout, and what past cycles suggest about what could come next. By Mike Larson Mike Larson: It has been a wild couple of weeks for some of the market's hottest investments over the past few years. I'm talking, of course, about AI stocks and cryptocurrencies. From Oracle to Microsoft, Bitcoin to Ethereum, we saw powerful pullbacks last week and tentative recoveries since then, but what's driving it all? Is this just a liquidity story or something more? Should we be worried about massive AI CapEx spending bills and dislocation in the SaaS space, or is this just another opportunity to get on board at better prices? And what about the big picture trends like tokenization and digital money? Are they still on track despite the market disruptions we've seen in the digital asset space? Joining me to get to the bottom of it all are two of our most plugged-in MoneyShow experts. They're Michael Lee, founder of Michael Lee Strategy, and Merlin Rothfeld, Senior Director at the Trading Academy. Gentlemen, thank you for joining me for this week's episode of the MoneyShow MoneyMasters Podcast. It has been a wild couple of weeks here in the spaces that you specialize in. You're going to be talking about it in our next couple of events coming up. Obviously, cryptocurrency and digital assets, as well as AI and tech stocks. But Mike, I think I want to start with you just because I know you have really been an early and accurate proponent of investing in the AI trends and a lot of these names that have done very well over time. At the same time, some of those stocks have really gotten hit hard in the last three to six months. So, I want to get an update from you - where you think we are in this cycle? How much should investors be thinking about or worried about what's happened lately? And just what's driving that action? Michael Lee: Yeah, great question, Mike. Where are we and what in the -- what is going on? So, first, in October, we were all systems go. And what derailed that was a liquidity crunch driven by the government shutdown. So, from the first week of September to the first week of November, the U.S. Treasury general account went from $0.5 trillion to $1.1 trillion. And so, some of that growth is from tax receipts, but most of it is from the government just not being able to spend money. And that's, think about it in reverse. If the Fed went out and bought $300 billion or $400 billion worth of bonds in 10 weeks, what would that do to liquidity in the system? Well, the same thing happens in reverse. So that was like one of the largest quantitative tightening events we've ever had. Historically, government shutdowns have to do very little to the stock market, but they have never lasted as long as the one in September. So, just as we're rebuilding ourselves from that, we end up in another scenario I like to refer to as Software-mageddon. And in Software-mageddon, software-as-a-service companies, right, so, companies which is basically the golden standard of revenue, it's the highest multiple revenue, and lots of private credit is levered against these companies, think about paying a monthly subscription fee for some sort of service. That long-term contract, steady revenue, that's very high quality revenue. And the argument is that AI agents are going to replace it. And so, in a matter of a week, we lost $600 billion of software market cap. And then you combine that with the debt that these legacy technology makers are taking on to build out the infrastructure for artificial intelligence. That's just it causes pause, and it's causing multiple compressions. So, the forward earnings multiple of the S&P 500 has gone from a 29 to a 24 in a very short period of time. So, you have all of this pressure coming down on these accounts -- on these stocks, like simultaneously as you're building it back up, regardless of how good earnings are, regardless of how good the outlook is, it's just putting a lot of pressure on these stocks and like some rightly, most wrongly. And it's like if these AI agents are going to sell-off, why is the infrastructure selling-off? Or, I'm sorry, if the AI age is going to crush software, you need to build a ton of infrastructure. So, why wouldn't the infrastructure names rally? So, in these panic moments, you enter a - I sell what I can, not what I want. And a lot of the baby gets thrown out with the bathwater. I think that's happened twice. It happened in November, and then it just happened in the last couple of weeks. Mike Larson: Yeah, we're going to get into a lot of those points, hit them specifically in a minute, but I want to go to Merlin. Merlin, when you look at what's happening in cryptocurrencies, Bitcoin, Ethereum, all these smaller cryptos and even to some extent, some of the wild action, the big run-up and then the big retreat we saw on things like precious metals, what's going on in these alternative assets? What are you seeing out there? Merlin Rothfeld: First off, let me touch the AI piece here, just to give a little two cents, history repeats itself. I'm still waiting for bell bottoms to come back. But if you look at the way that markets have moved in the AI space, it's very akin to how it moved back in 1995, 1996, 1997, and 1998, going all the way to 2020 when you had this euphoria for dotcom companies. And there was a lot of garbage crap companies out there that had no business being in this space. And then they just imploded. And I think part of what you're getting now is that euphoria, like I've got to get on this train. I'm not going to miss AI. People are pouring money into it, even if they don't even know they're going to get the returns on that capital outlay and CapEx spending. So, you're going to get a little bit of a shakeout every now and again in this market, but overall, I think long term, you're probably looking at things looking very good in the long-term for AI. As far as crypto goes, a similar situation. You have all the euphoria because Trump's pro-crypto, Bessent's pro-crypto. You got the Secretary or the Chairman of the SEC's all pro-crypto. You got the House, the representatives. The Senate pro-crypto. I think most people, including myself, are like this time is different. We're going to see a much bigger market rally. And then you get a lack of confidence and questioning what's going on in that space. As it stands today, there's over 33 million different cryptocurrencies. And I don't think most people understand that. That's more than all of the publicly traded and privately traded securities in every country, in every part of the world combined. And that's just crypto. I mean, I've created five of them. Most of them are garbage, trash scams that people are going to lose their money on. So, what we'll get there is a shakeout. And if you look at the price charts of most crypto right now, it's a shakeout. You're going to see a lot of stuff go to zero. All these meme coins, these garbage crypto projects that do no good, have no purpose, nothing of value, they'll go to zero just like a company should. So, right now, I think you're just seeing a shakeout of what is good and what is bad in crypto. Obviously, things like Bitcoin, Ethereum, Solana have taken a bit of a beating, but in the intermediate to long term, they'll be fine. Mike Larson: Yeah. And let's talk about that. I mean, we'll focus on the upper tier. I know some of your presentations have talked about avoiding scams and so on, which is important, but for the sake of this discussion, you look at Bitcoin dipping back below 70,000, I guess very briefly below 60,000 last week, if I'm not mistaken. How much of that is just concerns over companies like Saylor's companies and other Bitcoin treasuries? Is there something else that's driving that liquidation concern? Merlin Rothfeld: Yes, definitely. Yes, on two of those things. Number one, I'm starting to migrate more into the camp of, if we're looking at a black swan in the crypto event, start looking at Strategy, Michael Saylor and some of the treasuries out there, especially when you look at the custody of the Bitcoin, where it's actually being held, there isn't a very clear paper trail of where they all exist. And I think a lot of it revolves around fractional reserve lending going on in the parts of Coinbase and Fidelity or the other areas where they are custodying a crypto. To go, I guess, one step further with the discussion of Bitcoin in general, there's a four-year cycle that happens. And I'm a student of the market. I've been trading with my own money since 1996. So, going on 30 years now. It's hard to believe. I was six foot five and had good hair. Now, I'm balding and five eight. But you go back to that time where you're having these rosy, euphoric market behavior days, these three-year runs in Bitcoin where everyone's super excited. If you go all the way back to 2009, when it started, there's a very clear pattern. And every four years it goes through a process. And that process is that - first year of a new four-year cycle, it's down between 70% and 80%. Well, that four-year cycle started in October of last year. And I thought this time would be different. So, I don't want to be hypocritical. I did not sell my crypto portfolio as I was planning to do in September. And here we are now accelerating not only in line with expectations of what that four-year cycle sell-off should be, but we're actually even faster than that. We are far accelerating to the downside, any normal sell-off. So that should actually continue all the way through October of this year. And I hate to say, if it does come true and follow that historical precedent, we're looking at Bitcoin at about $37,000. Look, I don't want to go there. I'll buy more when it gets there, but unfortunately, that's what the data and charts have shown historically. And I always go with the historical data. Mike Larson: Got it. Mike, let me pivot back to you. Some of the numbers that I've seen in these announcements out of the AI and Big Tech space in terms of what they're spending on CapEx have been obviously astronomical. Google's out there this week borrowing billions and billions of dollars in a bunch of different currencies to fund some of its plans. What are your thoughts on that? What does that say? Have we gone too far? Do you think that just underscores the strength in this sector? What are your thoughts on the debt issuance and the CapEx spending? Michael Lee: Yeah, so that's just such an awesome question, and it's so prescient right now. Right. And look, if you just think about it from a finance one-on-one standpoint, what's the cheapest way to -- for a high quality company to find explosive growth? And that's debt. So, your debt is like, especially if you're a Google ( GOOGL ) or a Microsoft ( MSFT ), your debt is way cheaper than your equity. And your ROI on your cash is way less than you're paying for debt. Like Google's paying less than 100 basis points, like almost across the curve, give or take, plus treasuries like to borrow this money. So, like they're paying 5% or 6% on projects where the ROI is probably going to be in the 30s. It's just, you want to lever to the absolute hill to do this. And it just goes to, and I give credit to CoreWeave CEO, Michael Intrator; I might have pronounced his name wrong. But he said, look, he doesn't come from a tech background. He comes from a nat gas hedge fund bound. And you want to use debt smartly wherever you can. And it's a lot more efficient. And you have like you start hearing about, oh, well, it's a bubble and there's all these circular transactions and blah, blah, blah, blah. Right. And the fact of the matter is, OpenAI’s ChatGPT ( OPENAI ) and Anthropic ( ANTHRO ), which is Claude, are the two fastest-growing companies in history by a wide margin when you include users and revenue. And those revenue numbers and the projections are likely too low for them. And the adoption rates are likely too low going forward. So, you have this shift in technology that's a $5 trillion to $6 trillion annual enterprise IT budget, not to mention everyone else. And the limiting factor for the adoption of this is the infrastructure. And so, it's a race to where you want it to go. So, like, look, it's going to take some digesting for the market. And the bare argument against that is that you look at like Microsoft's trading at half the multiple Walmart, right? And it's because these – a lot of these tech companies command these high multiples because they had such high free cash flows. And now they don't really have cash while they're experiencing these big build-outs. So, there's been a lot of multiple contractions. So, I think it's going to take some getting used to for a lot of the investors that are out there and getting their arms around it. But it's hard to understand the size of the scope and it's hard to model out exponential growth. And just to touch on this Software-mageddon we had a couple of weeks ago - if AI agents are going to -- so, you're at a point in token demand. So token, not Merlin's cryptocurrency tokens. Tokens are three quarters of a page in a large language model, okay? And so, when you pay to use computes, you pay to use the video GPUs in Microsoft Cloud or Amazon Cloud ( AMZN ), all right, it is a limited factor. There is not enough capacity out there for demand now, okay? As these models get more complex, everything's increasing on an exponential basis. And when you jump to the era of AI agents and AI applications, okay, it jumps another level of exponential growth in terms of token demand. So, you can't tell me on one side of your mouth these agents are going to replace everything in the other side of your mouth, we're spending too much on infrastructure. Those two arguments can't co-exist. So, I believe these shakeouts are going to happen. And Merlin, I'd love to hear your opinion on that. In that, the crypto, I heard Andrew Pompliano said this to me directly that like, but you would think that the Wall Street guys would move to crypto, but what's happened is the crypto guys have moved to Wall Street. And so Bitcoin has had, on average, a 150% drawdown per year every year for the last decade. And so, the volatility that the crypto guys are comfortable with is so far above and beyond what traditional Wall Street guys are comfortable with that. Like this is here to stay. And shakeouts are happening because everything is levered to the absolute hill, right? AI. Because that's again, that's how you really juice the returns. So, this thing of volatility, I'd say, is here to stay. But like, look, if you could read through the weeds and read through the noise and close your eyes when things get ugly and maintain your investment thesis, I think there's a lot of money to be made. Mike Larson: Merlin, I'd love for you to answer Mike's question there. And then I've got one that came to mind just recently as well. Merlin Rothfeld: Yeah, I tell you, I've got -- so there's so much different pieces to tackle here. First, let me go back to the AI one. So, I'm a huge fan of AI. I love AI. I use it daily basis. And I think that if you're not using AI, you are absolutely going to become a dinosaur and fall behind in society. You have to be using AI. My concern is, and this is data that goes back to last year, I think it was actually of May or March. Microsoft's 50% of their CapEx spending was for NVIDIA ( NVDA ) chips. You had Amazon, 11% of their CapEx spending was NVIDIA chips. Meta's ( META ) 25% of their CapEx spending was NVIDIA chips. These are all the Magnificent 7 who are pumping so much capital in. How long can you continue to spend that much CapEx on NVIDIA? And if NVIDIA starts to slow down, which is the number one weighting in the NASDAQ and the S&P, it might shift between Microsoft now, but still such a monumental force in those indexes. If NVIDIA gets a slowdown in any way, shape or form, it starts to drag that market down. The other piece that really is, to me, an absolute red flag, and I don't understand why this is not talked about more, is, Mike, you pointed out OpenAI. Yeah, they're fantastic. I love using ChatGPT and OpenAI, but they had a revenue of $20 billion last year. $20 billion, which far exceeded expectations. Now, if that's the case, how can you leverage yourself to make promises to all of these firms, including Microsoft and Meta and all these other ones for $1.4 trillion worth of obligations to buy infrastructure, buy all the stuff? That is leverage that is unheard of. And Bear Stearns went under because they were over 20 to 1 leverage. We're talking like a 1000 to 1 leverage for OpenAI. This scares me because a lot of those obligations are going to be met. And if OpenAI does not succeed and become the biggest in AI, they're going to go down like a giant Icarus ball of fire here. And that could really hurt the industry. So, I think when the IPO happens here shortly, volatility is going to start to spike more. And all eyes are on OpenAI and Sam Altman. And if he can't deliver on his promises, I expect significant volatility in that AI segment. And that may be a big market pulldown. I don't know. It's all speculation. But how can you leverage out $1.4 trillion when you've only got $20 billion worth of revenue? It's like, well, we think we're going to be a trillion-dollar company. Not yet. Michael Lee: Well, because their revenue, well, the revenue in 2028 is projected to be $100 billion. So, you’re going to 5x your revenue and then by 2030, another double. So, and like with every one of these projected revenues, like the growth and the projected revenue for these companies, it's like you look at the numbers and you're like, that can't possibly be true. And you dig deeper and then you're like, wait a minute. It is true. And not only is it true, they're conservative. Right. And so, the change, the speed with which it's happening and the amount of money these companies are going to make. And so, for a company that's between now and the end of 2030, they may do north of a $0.5 trillion in revenue. Like, that's how you can get to $1.4 trillion in commitments, because like that's how. So like, look, we'll see, but it's just like, so I'll use Oracle as a test case. So, Oracle, its stock was at 350 and then it went to 140 in a relatively short period of time. So, taking on all this debt. Well, so what feeds a ChatGPT is information. Right. And so right now, when you search ChatGPT, it gets it from Reddit and Wikipedia and the Internet and all like some good sources, some terrible sources. Okay, but if you're an enterprise customer that's going to pay OpenAI a billion dollars a year, it's going to come from your information and maybe don’t pay him a billion, maybe pay him 10 million or 100 million. Okay, but it's your data that you have stored. Okay. Oracle has 36% of the world's data in their database. It's 36% of the world. Okay, and you look at all these projections like they're not going to just let you have it and feed it into the large language model to spit it out and do stuff. But oh, yeah, these agents that Claude is talking about that are going to take out all the SaaS companies, those aren't going to be free. I mean, like, all this stuff is going to cost an arm and a leg, and depending on how valuable it is, it is going to determine how much revenue, but there's never been a company that just didn't exist and got to $200 billion in revenue in eight years, but it's inconceivable, unimaginable. And that's why so many people are, oh, this is a lot of debt. But when you dig deep and you get your arms around it, you're, well, actually, these numbers are conservative. It's crazy as that seems. And like, let's just grip it and rip it. You close your eyes because it's going to be a roller coaster. Mike Larson: I have to add one thing that was brought up here, and that's the IPO situation. I know in this tech bull market, there's always been people grumbling. Public investors have a harder time participating. We're looking at OpenAI and a few of these other big names may be coming public later in 2026. And that would, of course, include even a name like SpaceX that we haven't talked about. What are your thoughts on what that does to the market from a supply-demand perspective, maybe as a trader or just a market sentiment, where we are in the cycle-type scenario from a fundamental standpoint? Just whoever wants it. Merlin Rothfeld: I love it, simply because I think it creates hype and attention for the financial markets. I mean, you look at OpenAI’s IPO, you look at SpaceX’s ( SPACE ) IPO. That's going to bring a lot of new people. And I have people all the time asking me, how can I get involved with SpaceX IPO? How can I get OpenAI? Personally, and I'm sure this is different than Mike's opinion. I'm an active trader. So, for me, I hate IPOs. I think that they are the most pumped, hyped, overhyped asset that's released on the market. So, usually you get a strike price of, oh, it's going to be $500 price. And then it pumps up to $700 because Goldman did a fantastic job of marketing, getting everybody on CNBC to pump this thing up. And it shoots up to $2000. It crashes all the way back down to $300 when I end up buying it back. So, I like them from the long-term perspective as an investor. I think SpaceX, I would much rather put my money in SpaceX than OpenAI personally, just because I'm concerned about the continued rate of return. I know Mike is certainly believing that OpenAI is going to continue to get those unbelievable multiples and revenue growth, but I think when you've got Claude, Anthropic, you got Gemini and Google, you've got X, I think you have a lot of competition coming in that space. And a lot of people, including myself, look at Sam Altman. I think that guy's a shady dude. I don't know if I really want to do business with him. I'm about to switch all my accounts from OpenAI to other AI programs just because I like them better. So OpenAI for me is iffy. SpaceX, I love it. I would never bet against Elon Musk, but I'm a big fan of the IPOs. I just think retail investors should never buy them on the IPO day, just because you're generally paying a highly elevated price. Mike Larson: Yeah. Mike, anything you want to add to that? Michael Lee: Yeah. The thing is, if you go back and you look at like the real 8 A.M. IPOs, like the late 1990s, and then some of the IPOs we got after the financial crisis that were really successful. What happened post-2000 is like Google's inception to IPO was like less than three years. Like OpenAI's inception to IPO, maybe four or five years. A lot of the return you'd get from being an IPO investor is sucked out in the private markets, like those hyper-growth phases in the first few years. So, if you can't get in on the IPO, like AI -- I'm with Merlin. If you really want to invest in one of these companies, you can get your hands on some shares without paying insane fees. There's a lot of scams out there and people watching. If you can get your hands on it, great. Do it now. Otherwise, wait for it to go public. Wait for it to have a bad quarter. Okay, and then start entering the stock because these businesses don't go away. And it's just hard to get that free juice, but I think IPO is attracting capital. I think it's a great idea for the market. Merlin Rothfeld: And Mike, another good point there would be like, look at the latest version -- the latest hottest IPO was Circle, right? Circle had an IPO initial price of $27. Then it jumped up to $31 the day of the IPO. And I think its first trade was like at $70. And that thing shot to like $240. If you look at their model, all they're doing is getting about 4% interest on $57 billion. Well, that's an easy math calculation to figure out what the price should be. So that was like a perfect short. Now, the thing is it's $60. It's still over what its IPO price should be, but hype drove that thing up, like Circle's going to be the greatest thing on the planet. And that's going to happen across the board for IPOs typically. Mike Larson: Got it. Well, listen, you guys are both going to be again joining us for the MoneyShow TradersEXPO in Las Vegas, February 23rd to 25th. We also have a pre-show event for that on Sunday, the 22nd. And then we're also going to see you in Hollywood, Florida, in April. Briefly, I know your topics are officially AI and tech stocks for 2026 for you, Mike, on one of your presentations. And then, Merlin, you've got a host of events on panels, stable coins, tokenization, a little bit of everything in the digital world. What's maybe one thing you can tease that people are going to get out of attending your presentations? What do you think is the most important bit of information or thing you need to keep in mind as a trader or investor in the spaces you follow? And Merlin, I'll start with you. Merlin Rothfeld: I guess from a digitization and tokenization side of things, a lot of people are still naysayers on cryptocurrency and digital assets. The reality is, the entire foundation of the financial markets is going to move to digital rails, just like we saw music move from eight tracks and cassettes and vinyl all the way to streaming media now or cars are now self-driving. Technology is continuing to evolve and our financial system is outdated. It's antiquated. I mean, look at how we test to determine whether something is a security or not is from 1946. We didn't even have computers back then. And you're telling me you're going to tell me cryptocurrency is based off those rules. It just doesn't work. So, we're going to update the entire financial system, whether you like it or not, whether that means we have a Central Bank digital currency and actual digital money, which I think will be here in about 10 years. I think we'll have no more fiat, like physical fiat currency. It'll all be digital. And if that doesn't interest you, there's going to be everything that's traded. So, we talked about stocks and futures and options and crypto and real estate. All those things will be on a blockchain. You already have applications from Nasdaq to put everything from their marketplace onto a blockchain. We'll have tokenized real estate. So, your houses that you buy will now be tokens that can be easily moved back and forth much more conveniently. So, I think the exciting part here is not only understanding how this all works, the infrastructure, but where does the opportunity lie? Right. Do I go to the blockchains and buy blockchain technology? Am I looking for companies that do real-world assets and tokenization? Or do I go with something like BlackRock, who wants to be the king of it all? There's plenty of opportunity in this space. And I'm pretty damn excited about it. Mike Larson: Got it. And Mike, I guess I would ask you, we had the big sell-off. We flushed some of these names out. We've recovered a little bit. Obviously, the timing of the Vegas event being a little bit later in February, what are one or two key messages you're going to have? What are one or two parts of the market in your space and AI and tech that people really need to pay attention to here? Michael Lee: Yeah. So, I'm going to have a special presentation on Sunday at the pre-event where we talk about how liquidity can drive the price of these stocks and the fundamentals just get thrown out the window. And so, I think that'll be really interesting. And it's something really good for people to understand, because your thesis may be right. Your stock may be down 30% or 40%. And you're saying what happened? Their earnings just blew out the door. Just blew the doors off. This company is doing great. Like, do I cut my losses or do I stay in it? And it's being able to track these other factors that affect the price, especially of things like crypto will be -- it's the way I look at it. The smart people I talk to are looking at it closely. So, hopefully that'll be a very useful tool you'll be able to take with you in perpetuity. Mike Larson: Perfect. Gentlemen, thanks for taking some time out to talk about the markets here. Michael Lee: Thanks, Mike. Merlin Rothfeld: Thank you. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. Originally published on MoneyShow.com