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The market’s long M&A winter could finally be about to thaw. It’s good news for investment-banking stocks.

This was supposed to be a great year for mergers and acquisitions. Investors believed President Donald Trump’s deregulatory bent would unleash a torrent of deals that had been blocked by concern over how the Biden administration might react.

So far, it hasn’t worked out that way, in large part because Trump’s tariffs threw markets into chaos. Corporate executives scrambling to deal with the fallout put big decisions like merger deals on hold.

Now, things finally seem to be getting back to normal. Trump moderated his tariff program, including a recent deal to slash levies on Chinese imports for 90 days while the two countries work out their differences.

The past week has brought a handful of headline-making announcements. Friday morning, the cable company Charter Communications said it planned to buy Cox Communications in a deal that valued its privately held rival at $34.5 billion. Thursday, Dick’s Sporting Goods disclosed an agreement to acquire Foot Locker for $2.4 billion. And earlier in the week, the online brokerage Robinhood said it would purchase WonderFi, a Canadian digital asset company, for 250 million Canadian dollars, or about $179 million.

Republicans’ $3.7 trillion tax bill, currently winding its way through Congress, could give merger activity another boost. New legislation, an update of the 2017 Tax Cuts and Jobs Act, would help reduce uncertainty, especially because many provisions of the original bill are set to expire at the end of the year.

Some specific provisions of the new bill could also help directly. In a note Friday, Wolfe Research analyst Chris Senyek said current versions may allow companies to immediately claim depreciation expenses on newly-acquired equipment, restoring a popular feature of the 2017 bill that had been phasing out. “This would favor buying tangible asset heavy businesses,” Senyek wrote. “If passed into law, we expect M&A activity to accelerate in a similar manner to 2018.”

Hope for a potential M&A revival, and disappointment that prospects for one seemed to be fading, have sent financial services stocks on a roller-coaster ride. The Invesco KBW Bank ETF, an exchange-traded fund that tracks the sector, gained more than 15% between the start of November and Feb. 19, the day the market reached its record high, compared with a gain of just 7% for the S&P 500.

But those stocks have struggled since then as Trump’s tariff agenda overshadowed other priorities like deregulation and tax cuts. In the past three months, the bank ETF has fallen more than 7%, compared with 3.4% for the overall market.

Major banks like JPMorgan Chase, Goldman Sachs, and Morgan Stanley would all be beneficiaries from a merger boom. But smaller names such as Lazard, Evercore, and Moelis, which represent something much closer to a pure play on the investment banking industry, could be bigger winners.

Shares of Evercore are down about 12% year to date, despite having rallied more than 30% in the past month. Just how tied is Evercore to the lackluster M&A space?

In the bank’s latest quarterly earnings presentation, executives included a slide bragging that only about 60% of its revenue in the past five years came from advising on M&A deals. They said that during the first quarter, it had been less than 50%.

Evercore investors may indeed have felt reassured the company was diversifying its revenue sources away from M&A. But they would probably a lot happier if the merger market just picked up.

It may be a small world, after all—but not on Wall Street, where small-cap stocks continue to lag the broader market. The Russell 2000

and S&P Small Cap 600 indexes are down 8.3% and 9.5% in 2025, while the S&P 500 is roughly flat.

Still, both small-cap indexes have gained nearly 20% from the 52-week lows they hit just after Liberation Day. Hopes are growing that the Trump administration will focus more on domestic economic stimulus, such as extending tax cuts and deregulation, and less on tariffs and trade. That should be good news for smaller U.S. companies.

It also doesn’t hurt that small-caps continue to look very cheap compared with their megacap brethren. The S&P 600 trades for less than 16 times 2025 earnings forecasts, compared with a price/earnings ratio of more than 22 for the S&P 500. That’s a bigger-than-usual discount.

Tim Skiendzielewski, a portfolio manager at Rockefeller Asset Management, says small-cap valuations remain unreasonably depressed, especially if investors are underestimating the potential for earnings growth to accelerate. Analysts are now forecasting a 20% jump in earnings per share for the S&P Small Cap 600 in 2026, and that could be just the start of several years of strong growth. More merger activity —combined with hopes for increased infrastructure spending from Washington—should also boost small-caps, says Skiendzielewski, who thinks industrials, tech, and financial stocks should be the biggest winners from these trends.

More easing from the Federal Reserve, which the market is pricing in for later this year, would also give small-caps a lift. That’s because many of the stocks rely on floating-rate debt to fund growth. Lower short-term rates would give these companies a boost. “Small-caps are very sensitive to interest rates,” says Peter Roy, a portfolio manager at Argent Capital, which runs the actively managed Argent Focused Small Cap exchange-traded fund. “Fed cuts could help.”

Look no further than the housing market, which could get a lift from lower interest rates, especially if construction activity increases, says Roy. “There is a chronic undersupply of homes,” he says. “Housing starts are not keeping up with demand and people with low mortgage rates are staying in existing homes longer.” He owns Green Brick Partners, a land developer building new homes in suburban areas, Champion Homes, a manufactured-home builder, and UFP Industries, a supplier of wood and composite decking.

Others are looking away from economically sensitive areas to those that can grow no matter the environment. Randy Gwirtzman, a portfolio manager at Baron Capital, points to small-cap defense and cybersecurity stocks as attractive in light of plans for increased military spending in the U.S. He owns missile defense companies Mercury Systems and Karman Holdings, which could benefit from Trump’s Golden Dome plans, as well as unmanned drone maker Kratos Defense & Security Solutions and cybersecurity companies CyberArk and SentinelOne, in the Baron Discovery fund. “Investors are underallocated to small-caps and should be investing in secular growth,” Gwirtzman said.

But looking for profitable companies is key, particularly as bond yields spike. Analysts at 22V Research noted in a recent report that going “long quality [and] short unprofitable small-caps is a pure representation of the ‘rates are too high’ trade.” Argent’s Roy acknowledged that a significant chunk of companies in the Russell 2000 are unprofitable. He only invests in ones that are making money. “That culls our investible universe pretty quickly,” he said.

Why did dire headlines and market surprise accompany Moody’s recent downgrade of its U.S. credit rating, when the facts leading to the firm’s decision have been well-known for years? Like the proverbial slow-boiled frog, the challenges associated with America’s aging demographics and growing debt levels have been building for decades. Are markets only now waking up to the uncomfortable and uncertain fiscal outlook?

Some confusion is understandable, even if the stakes seem clear. We will need to solve the mismatch between government revenue and spending, but whether that is easier or more difficult is an open question. There are two highly probable paths ahead for the U.S., and we don’t yet know which one we will follow.

On one hand, my team at Vanguard estimates there is about a 40% chance that the unchecked fiscal dynamic will result in an extended period of stubborn inflation and higher interest rates, akin to a milder 1970s. In that scenario, stocks would lag behind bonds, and interest rates could climb above 7%. A slowing economy would leave millions of Americans poorer. On this path, we estimate 20% odds that the 10-year Treasury yield (a benchmark for mortgage rates) is above 9%, or twice the current rate.

On the other hand, we also estimate there is close to a 50% chance that technology, especially artificial intelligence, could unlock productivity at scale, enabling greater growth and tax revenue offsetting some of these headwinds. In either case, we are highly likely to see the end of the status quo of stable growth, inflation, and financial returns.

These probabilities are, of course, imprecise. But they draw on a unique quantitative framework that Vanguard has developed, based on decades of research, to provide a sense of the most likely economic scenarios through 2035, driven by an interplay of factors: technology, demographics, globalization, and fiscal debt—so-called megatrends. The goal is to help investors prepare for the most likely outcomes. Probability estimates help clarify how we think about the long-term outlook, so we don’t get bogged down in today’s headlines or paralysis of analysis.

Our framework suggests that the 2030s will be shaped by a tug of war between technology as a source of growth, and age-related spending deficits as a source of weakness. Two likely scenarios emerge.

Scenario one: Productivity surges (45% to 55% probability). AI continues to advance at an increasingly faster pace and becomes a general-purpose technology, like electricity. By the first half of the 2030s, AI has raised productivity more than the personal computer and the internet. It eventually sparks transformative knock-on effects, new industries, and significant job displacement. Technology keeps inflation in check, and deficits cease to climb given higher tax revenue from stronger growth. A surge in innovation occurs thanks to more work automation and task augmentation. Costs of living are somewhat more manageable. Standards of living for the average American household double every 30 years, not every 70.

Scenario two: Deficits drag (30% to 40% probability). AI disappoints, failing to live up to the hype. Worker productivity remains sluggish due to a continued lack of augmentation and automation. Meanwhile, government deficits keep climbing. Government spending remains indefinitely higher than revenue, requiring higher borrowing, and this structural deficit raises borrowing costs. Credit slows. Home prices either fall, homeownership moves more out of reach, or both. U.S. growth becomes less exceptional and more European. Based on current prices, financial markets are unprepared for this outcome—so declining prices and increasing volatility is a new trend. Deficits raise inflation expectations, making inflation stubborn. The acceleration of price increases makes the average worker’s standard of living lower than their parents’.

On one side is the possibility of technology-fueled economic growth. On the other, we have the near-certain weight of fiscal deficits, aging demographics, and rising borrowing costs. Which side wins will affect generations to come. Will AI deliver a surge in productivity even close to what electricity did 100 years ago?

Investors should plan for two future paths, not one. The “productivity surges” and “deficits drag” scenarios aren’t just possibilities, but meaningful probabilities. Together, our framework estimates the chance of one of these two forecasts occurring is greater than 80%. As investors, we need to consider portfolios that are prepared for both scenarios. The goal is to narrow the range of future outcomes and better manage risk.

If AI becomes a true general-purpose technology, the U.S. could experience a rare “best of both worlds” scenario where positive economic trends open a window for policymakers to enact pre-emptive and even gradually phased-in fiscal reform. But, critically, even if AI’s promise is realized, it only buys time. Without meaningful fiscal reform, economic growth will eventually decline.

If technology and AI disappoint, the era of tough choices will arrive sooner than markets might think. Investors can try to prepare, by shifting a greater allocation to bonds and a diversified set of value stocks, but policymakers are the key. They can control the path of the structural deficits far more than they can guarantee and harness transformative productivity gains. They have significant work to do because the water is getting warmer.

Healthcare stocks have been performing so badly for so long, it’s hard to tell whether they need a doctor or a mortician. They may finally be on the verge of a revival.

Down 5.1% so far this year, the Health Care Select Sector SPDR exchange-traded fund has been running neck and neck with energy and consumer discretionary for the worst sector of 2025. The S&P, for its part, is down just 0.3%. It’s not hard to see why. The sector has been hurt by Donald Trump’s decision to name Robert F. Kennedy Jr. —no fan of traditional science-based medicine—to head Health and Human Services and Marty Makary —more a devotee of science but no less a skeptic of the pharmaceutical industry—to head the Food and Drug Administration; by the collapse of UnitedHealth Group stock, once the sector’s largest, under the sheer weight of bad business decisions and scandals; and continued scrutiny of Medicare and drug pricing, among other initiatives.

Healthcare’s bad run isn’t just a 2025 phenomenon. The Health Care Select Sector SPDR has underperformed the SPDR S&P 500

SPY by 9.1 percentage points annualized over the past five years and fallen short of the benchmark in four of the past five calendar years. Clearly, more than Trump is weighing on the sector. Regulatory uncertainty, pandemic-related disruptions, and lack of innovation outside of fat-burning GLP-1s have contributed to the view that the sector is anything but a must-own.

Sometimes, though, these sentiment shifts get too extreme—and now may be one of those moments. One way market technicians try to compare indexes is by looking at the change in the ratio of one to the other. Jason Goepfert, founder and senior research analyst at SentimenTrader, notes that the ratio of the price of the healthcare index relative to the S&P 500 fell more than 35% from its most recent high, something that had only occurred seven times before over the past 100 years. That type of relative decline has typically been a good time to buy the sector, which has averaged a return of 17% over the subsequent 12 months.

But wait, there’s more. The Health Care ETF traded at a new 52-week low on May 15 before rallying to finish the day above the previous day’s high. That, too, is a rare occurrence—it’s happened just four other times since the ETF’s inception in 2000. Once again, returns have been quite good. The ETF has averaged a 21% rise over the 12 months following the signal, according to SentimenTrader data, including a 46% rise after getting triggered in 2009. That, too, suggests the sector is oversold and primed for a rally. “Trends in the sector are so bad that they indicate washout conditions, and investors seem to sense snapback potential,” Goepfert writes.

Insiders, however, are taking the long view. Goepfert notes that they’ve been scooping up shares of beaten-up UnitedHealth and Humana, among others, with the buying outpacing selling. That, too, has been a good sign for returns. “The increasing pace of buying among insiders in the sector further confirms that those who should know best have confidence in a potential recovery,” he writes.

Not everyone is convinced. Earlier this month, Savita Subramanian, head of U.S. equity and quantitative strategy at BofA Securities, noted that the sector had become increasingly tied to the market environment, with about 70% of the price returns over the past five years explained by macro forces. The sector has also gotten riskier, with earnings-per-share volatility now close to the same as the overall market’s, margins that have been shrinking, and debt that has been rising.

The only thing it really has going for it is valuation—biotech stocks are cheaper than growth peers in the tech sector, and pharmaceutical stocks trade at a discount to defensive consumer staples. While the group ranks No. 2 in BofA’s short-term sector model, it remains an underweight in its S&P 500 weightings.

Still, Subramanian highlighted six healthcare stocks that could be worth a look: drug distributor Cardinal Health, CVS Health, Eli Lilly, health insurer Cigna Group, Danaher, and Thermo Fisher Scientific.

Those seem like decent choices, but we’d highlight one of our own: Gilead Sciences.

Gilead has been stuck in no-man’s-land since it came up with a cure for hepatitis C, which was approved in 2013. But a controversy over cost and almost immediate competition from AbbVie and others caused the stock to peak in 2015. It’s been range-bound ever since. Gilead, however, is now near the top of its range, and tantalizingly close to a breakout. The next catalyst could be its HIV treatment lenacapavir, which is awaiting FDA approval. It’s injected twice a year, rather than being a pill taken every day, which Jefferies analyst Michael Yee says could be attractive to current patients.

A decision should come by June 19, though there are worries that the approval will get held up. Yee doesn’t think it will. “[Management] has been in good dialogue [with the] FDA and we’re weeks away and the drug has Breakthrough Therapy designation,” he explains. “We see a [potential] strong launch into 2026 and numbers going up.” His price target of $130—14 times 2026 earnings of $9 a share—suggests shares could gain 22% from a recent $106.51.

That’ll put a spring in your step.

Lingotto Innovation’s James Anderson and Morgan Samet favor companies with explosive growth potential and a focus on innovation.

Exponential technologies and falling stock prices are an ideal combination for growth investors like James Anderson and Morgan Samet. The year 2022 delivered both: The S&P 500 fell more than 19%, its worst showing since the financial crisis, and ChatGPT launched that November, setting the stage for the next technological revolution—and an explosive bull market in stocks.

By the following spring, Anderson and Samet had teamed up to run Lingotto Innovation, to take advantage of attractive valuations in public and private companies with outsize growth potential and a relentless focus on innovation. Today they oversee about $800 million for the strategy, a unit of Lingotto, the investment management company owned by Exor.

Anderson is no stranger to Barron’s readers. He was a member of the Barron’s Roundtable in 2020 and 2021, and a longtime partner at Scotland’s Baillie Gifford before retiring in 2022. He made his way to Lingotto, controlled by Italy’s Agnelli family, via his connections with Sergio Marchionne, the late auto executive, and John Elkann, Exor’s chairman and CEO. Samet, who had worked at several investment firms, including Goldman Sachs and Belfer Investments, shares Anderson’s long-held conviction that just a handful of companies drive the majority of investment returns.

Despite their differences in experience and background, Anderson and Samet are mutually devoted to finding extreme winners, and holding them for an extremely long time. The pair recently spoke with Barron’s about their investment philosophy, some of their favorite companies, such as Aurora Innovation, BYD, and Tempus AI, and the challenges that stand in the way of economic growth.

An edited version of the conversation follows.

Barron’s: Lingotto says it aims to “constantly challenge conventional thinking” to produce exceptional long-term results. James, how are you challenging conventional thinking in your role at the firm?

James Anderson: Investors in private markets concentrate on finding extreme winners. The goal for many public-market investors is to provide slightly above-average performance in slightly more than 50% of stocks owned. I had lunch a month ago with Hendrik Bessembinder, and we agreed that these tendencies are only becoming greater. [Bessembinder, a finance professor at Arizona State University, has produced research demonstrating that just a tiny percentage of stocks are responsible for the U.S. stock market’s gain since 1926.] He was even more frustrated than I am that public-market investors haven’t adopted the view that outperformance is reliant on extreme winners.

Also, the time-frame issue in public markets has become ever more acute. Most professional investors are rewarded on the basis of short-term performance, not long-term results. We combine a belief in the long run with a belief in looking for extreme outperformers. To do that, you must be prepared to be patient.

It is important to me to try to pass this sort of thinking about extreme outcomes and time patience on to the next generation. Nothing would please me more than to see our young colleagues take this further.

Morgan, what is the ideal sort of investment for Lingotto’s innovation strategy?

Morgan Samet: There is no ideal investment because innovation is about something that didn’t exist or scale previously. You have to repeatedly think orthogonally and combine imagination with fundamental analysis.

The investor psychology that James touched on shouldn’t go underappreciated. In many ways, it creates the opportunities our fund has. The way markets were structured and have evolved over time has created dislocations in valuation relative to the prospects of some of these businesses—in particular, high-growth, innovative companies that might be earlier in their journey, or less profitable, or riskier in some ways. You need to be able to see through that.

The opportunity in innovation comes from being non-consensus. This brings me to portfolio allocation. Sometimes “non-consensus” means understanding how massive an opportunity could be. Our strategy is to allocate funds based on our perception of the size of the opportunity and our conviction level about it.

As long-term investors, how do you deal with short-term market volatility?

Anderson: We try not to think about it too much. I am focused at the moment on trying to understand what has led to the extraordinary environment we’re in. Why is there so much political and economic disillusion? The biggest problem we face in generating sufficient productivity, wealth, and disposable income is that we haven’t managed to get to a position where we can have major increases in energy supply.

The historian Henry Adams predicted that energy utilization needs to double every 10 years to enable economies to grow and productivity to increase. The trend is known as the Adams Curve.

Since the 1970s, and particularly as we enter the era of artificial intelligence, our need for energy has grown. Many of our problems will be resolved if we make progress on issues like energy demand, rather than focusing on the dramas of the day, such as tariffs. Fundamentally, in the West, we don’t have the ability to grow our economies and provide people with more disposable income without generating inflation. That is intensely linked with the absence of progress on the energy front. The linkage is more profound than we are willing to recognize.

What other issues stand in our way?

Anderson: Our major structural issues are caused by a battle for global power—namely, the underlying tension between America and China. We need to resolve effectively how these societies will get on with each other. Day-to-day conflicts are symbols of that tension, but the fundamental structural problem needs to be addressed.

Related, AI is a major structural change that will alter the payoffs that central banks and markets deal with day to day. We will know the scale of that transformation only in five or 10 years’ time.

You have made a big bet on AI in your portfolio with stocks such as Nvidia. What are some of your other favorite names?

Samet: We are in an innovation supercycle, paired with geopolitical and macroeconomic uncertainty. That leads to chaos, which leads to opportunity. Trading bots and pod shops [multimanager hedge funds] are trading the volatility, while more traditional investors are hiding in more resilient businesses. We don’t just want resilience. We want businesses that are accelerating due to a combination of factors.

AI, autonomous vehicles, and related technologies are all accelerating. We are invested in some of the infrastructure players— Nvidia and Taiwan Semiconductor, which, for a long time, wasn’t given the credit it deserves. We are also investors in ASML Holding and ServiceNow, which accelerates the implementation of AI via applications, agents, and workflows.

In autonomous vehicles, we are investors in Aurora Innovation, the leading autonomous trucking company in the U.S., and Pony.ai, a leader in autonomous vehicles and robo-taxis in China. There is no debate about whether autonomous vehicles are going to exist, and the leaders are clearer than people think.

What sort of growth trajectory do you envision for Aurora?

Samet: Autonomous vehicles have been in development since 2004. If you charted the development rate, it would currently look like a hockey stick. Zooming in, however, you would see how much progress has been happening all along.

Autonomous trucking is a harder business than cars. Trucks go faster, they carry heavy materials, there is more regulation, and companies operate across state lines. But the savings associated with autonomous trucking are massive. Being able to run a truck continuously—that is, 24 hours a day, seven days a week—would deliver a significant uptick in the profitability curve, in our view.

When do you expect Aurora to turn profitable?

Samet: I am less focused on profitability and more focused on whether the company has enough cash to carry out its mission and show the milestones necessary to continue raising cash. Aurora has a multiyear runway in terms of cash, a supportive investor base, and contracts, or partnerships with the three largest OEMs [original equipment makers].

Baillie Gifford was one of the largest outside holders of Tesla. James, have you also made a bet on Tesla at Lingotto?

Anderson: We have a small holding. The company’s progress relative to peers is increasingly challenged and disappointing. That applies both to electric vehicles and autonomous driving.

The progress being made elsewhere, particularly in China, is startling. We own BYD, whose EVs are a dominant factor in the industry. China has moved ahead hugely not only in building EVs but an entire energy system based on renewables. The price of Lidar [range-sensing technology] is falling in China to levels a hundredth of what it was expected to be in America or Western Europe. Given the dimensions of the challenge, we believe it will be difficult for leadership to come back to the West.

Missing out on the energy revolution—whether in renewables, battery technology, autonomous driving, or nuclear fusion—would be a problem for America, in our opinion. We haven’t yet spoken to an American car company that doesn’t view inputs from China as critical.

What is ahead for BYD?

Anderson: It became obvious in the past 20 years that China was putting a huge effort into EV technology. A lot of it was driven by the deterioration in the air quality. Still, five years ago it was pretty obvious that Tesla would be the industry leader, whereas in China, there were 60 or 70 competitors.

In the past three years, two things have happened. First, the Chinese EV market has become dominant in scale, and second, BYD has emerged as the industry leader due to its battery technology. Today BYD has about 30% of the market. The company’s success reflects a deep commitment to science.

What looming innovations strike you as most interesting or important?

Samet: We are going to see a massive step change in terms of better, faster, cheaper drugs and new modalities in pharma. There have been material innovations involving the use of AI for drug discovery, and we have made a number of public and private investments supporting that.

Recursion Pharmaceuticals is one example of a company taking an AI approach to drug discovery and figuring out which targets to focus on. Enveda, a private company, is taking a “natural” approach to using AI. The concept is that substances found in the natural world are more likely to be safe and effective for humans than those produced artificially. The company has a proprietary technology that enables it to scan, catalog, and fingerprint natural substances that would make it through Phase 1 testing in Food and Drug Administration trials with a materially higher success rate than average.

The pharma industry historically has been financially driven in the way it buys and sells assets. To the degree that you can statistically improve your success rate at any stage of the FDA funnel, you will be able to enhance the return-on-capital mechanism.

I’ll mention one more company, Tempus AI. It is an AI diagnostics company.

Meaning what?

Samet: Tempus provides genomic sequencing. The costs are falling to the point where it may be possible to sequence people’s genomes multiple times throughout their life. The company focuses on oncology, and is now connected in near real-time to more than 50% of all oncologists in the U.S. Those data are valuable to pharma and, in combination with other information, to doctors trying to find the right clinical trials and treatments for their patients.

We expect Tempus to grow substantially in future years. It is already nearing profitability, and will have a high margin structure relative to tool-development peers. The company also has a lot of optionality in terms of its distribution lock-in with doctors, the value of its data, and the nature of its sequencing data collection.

Any parting thoughts about the future of innovation, or your investment plans?

Anderson: Yes. Innovation over the past 20 or 30 years was dependent on Moore’s Law, and not much else. It was fantastic for building truly powerful companies with extraordinary market caps, but they didn’t change the fundamentals of our economy at the level of productivity. What we are talking about now is companies that have the ability over the next 20 years to change the growth rates, productivity, and happiness of our society.

Thank you, both.

Bar owners say blame the distillers, who say making virgin versions of tequila, gin and whiskey is akin

Clara Choi gets a funny feeling from the drinks she sips when she goes out with friends.

The fruity, brightly colored concoctions typically incorporate juices and syrups. They contain no alcohol, but they still make Choi wince and leave her with a different kind of hangover.

“It looks pretty, but it’s literally a layer of grape juice and orange juice,” said Choi, a 30-year-old Southern California foodie working in higher education. “They are definitely gouging.”

So-called mocktails are lingering on bar and restaurant menus long past Dry January—into Dry July, Sober October and beyond. More Americans are forgoing alcohol as they prioritize health over catching a buzz.

Not wanting to be empty-handed, many of the sober or sober-curious are ordering up nonalcoholic cocktails instead. The concoctions’ high-proof price tags, though, are frustrating drinkers who are skeptical that the cost of syrups, sodas and fake spirits can rival the real thing.

Mina Wallis doesn’t drink. The 24-year-old transcriptionist often orders Shirley Temples when she goes out, and said some spots now charge more than $10 for the mix of ginger ale, grenadine and a maraschino cherry. That’s steeper than some alcoholic drinks.

The Australian native said she’s sipping more lemonade and orange juice as a result. “[Businesses] are probably losing money because I’m not having four espresso martinis a night, but I think some of the prices are just unjustifiable,” Wallis said.

Dan Hauser, 37, of Niles, Ill., estimated that his roughly 10 months of sobriety has saved him more than $6,000—after he got wise to alcohol-free drinks’ pricing.

“You can’t price them like that, if they’re even remotely close to the price of a real cocktail,” Hauser said. He sticks to Topo Chico, Diet Coke and ice tea.

Roughly a half-million cases of nonalcoholic spirits were sold in the U.S. in 2024, more than 10 times the amount sold five years earlier, according to global data and insights provider IWSR.

Even chains like Texas Roadhouse—known for its draft beers and margaritas—are adding virgin Strawberry Cucumber Fizzes and Sparkling Berry Blisses to their menus. With alcohol sales steadily dropping from highs coming out of the pandemic, executives say chains need to adapt.

Mocktails served at bars and restaurants averaged $8.61 a drink at the end of last year, according to market-research firm Technomic. That’s up from the prior three-month period, but below the $13.43 average for cocktails.

Bar owners say making libations with fake spirits doesn’t come cheap.

At the Understory cocktail bar in San Diego, mocktails go for around $15, a dollar less than the cheapest mixed drinks. The bar serves drinks with Seedlip and Ritual Zero Proof nonalcoholic liqueurs, which each cost the bar around $24 a bottle to purchase, said Chance Curtis, Understory’s general manager.

“It’s the same price as spirits. We have to price accordingly,” Curtis said.

In Philadelphia, Cavanaugh’s Rittenhouse sports bar sells an ‘Acai You’ faux gin drink and a Phony Negroni for $8 and $12, respectively. The shots of St. Agrestis nonalcoholic spirits or Ritual Zero Proof Gin alongside mixers cost the bar around $2 per drink, about the same as alcoholic versions.

“My staff thinks it’s crazy, but it’s a lifestyle choice,” Mike Anderson, the sports bar’s general manager, said of people going to bars and ordering pricey nonalcoholic drinks.

Distillers say making virgin versions of tequila, gin and whiskey is a process akin to alchemy. Iván Saldaña, a master distiller who has made 15 different full-proof spirits, said cracking the code on a distilled, nonalcoholic blue agave spirit took about two years of trial and error.

Saldaña harnessed a mushroom to stave off spoilage. He fostered the viscosity and aromas of the blue agave through a concoction of sugar, vinegar, bit of acid and other natural ingredients.

The process took as long as making a tequila, with a cost to match. Almave’s “blanco expression” costs $36.99 a bottle and its Ámbar liquid brand goes for $39.99, according to Casa Lumbre Spirits, the company behind the brand.

Saldaña, who has begun to drink less alcohol as he has gotten older, disdains the mocktail moniker. He sees it alienating sophisticated drinkers who he believes could sample his nonalcoholic spirits in between traditional libations.

“Mocking is not good,” he said.

Beth Stratton, a 37-year-old physical therapist assistant from Michigan, said she prefers something less sweet than solely juice-based drinks.

But for Stratton and her sister, who quit drinking, locating bars that serve mocktails is like hunting down a speakeasy during Prohibition. “You have to rely on other people to find those places,” she said.

At Supperland in Charlotte, N.C., the upscale restaurant and bar still sells juice-based drinks for $7, but now also lists alcohol-free takes on gin and tonics and tropical drinks for between $12 and $16.

Supperland’s beverage director Colleen Hughes said she trains her servers to steer parents away from the drinks spiked with liquor alternatives, to avoid unhappy children. “These have adult flavors,” she said.

Prices, too. Supperland recently added a nonalcoholic sparkling wine to its menu at $75 a bottle. Some customers have requested nonalcoholic options for Supperland’s tasting menu events, starting at $175 per person, so they don’t feel left out with their drinking friends.

“People willing to spend that much on nonalcoholic cocktails is bananas,” Hughes said.

Jake Hopkins has curbed his drinking after 12 years of DJing and clubbing. Mocktail prices can “definitely feel a bit like the bar is trying to juice you,” said the 34-year-old working in artificial intelligence.

But he’s convinced that paying $13 to $15 for alcohol-free “potions”—which contain nonalcoholic elderflower spirits, butterfly pea flower, rose quartz crystals and lily garnish—at places like Denver’s Honey Elixir Bar is still a better deal than the alternative.

“The drinks always taste good,” Hopkins said, “and I never end up at a sketchy after party at 5 a.m.”