Tom Lee, Managing Partner and head of research at Fundstrat, said in a CNBC interview on Thursday that while markets are concerned about the credit side of the AI trade, they seem to be bottoming.
- Lee also noted that he likes software and crypto trades at the moment, saying ”the whole broad cyclical trade, I’d be pretty bullish on.”
- Lee added that despite the massive, debt-funded spending on AI, it is justified, since “AI is a more important infrastructure build, arguably, than mobile.”
- The tech sector has been volatile in recent weeks, appearing to post a recovery early this week before plunging again on Thursday following LAM Research CEO Tim Archer’s comments about supply chain concerns.
Managing Partner and head of research at Fundstrat, Tom Lee, believes that while the artificial intelligence trade and memory stocks are faltering amid bottlenecks, and it is “easy to short them now,” the broader cyclical trade still seems optimistic.
In an interview with CNBC on Thursday, Lee said, “I think the AI and the bottlenecks are the memories and the Nvidias and the Mag 7.” He added that while markets are concerned about the credit side, “they’re bottoming.”
Lee also noted that he likes software and crypto trades at the moment, saying ”the whole broad cyclical trade, I’d be pretty bullish on.”
Lee Says AI Spending Points To Growing Infrastructure
Speaking specifically to the AI trade cycle, Lee noted that despite a divided market consensus on the sector, “AI concerns are preventing a bubble” as there are still “astounding discoveries” being made.
The research head pointed to Meta Platforms’ (META) recent Muse agents release and OpenAI’s math solutions to make his case.
“This is not the end or late cycle for AI discovery and even the productivity boost. So as long as we’re starting to see advances there, every dollar of capital raised for AI is generating returns,” he said.
“I think it’s actually really healthy that the debt markets are sort of preventing a runaway speculative boom in AI. So I think it’s actually a very healthy correction that way,” he added.
Lee also noted that despite the massive, debt-funded spending on AI, it is justified, since “AI is a more important infrastructure build, arguably, than mobile.”
Recent Selloff In Tech Stocks
The AI trade has been highly volatile recently. Last week, AI and tech stocks sold off amid growing concerns about ballooning debt and the sector’s sustainability.
However, the sector appeared to recover early this week before plunging again on Thursday after LAM Research CEO Tim Archer highlighted supply-chain concerns.
Chip-related exchange-traded funds declined sharply at close on Thursday. The iShares Semiconductor ETF (SOXX) fell nearly 7% at close, while the Direxion Daily Semiconductor Bull 3X Shares (SOXL) plunged more than 20%, and the VanEck Semiconductor ETF (SMH) fell nearly 6% at close.
The Global X Artificial Intelligence & Technology ETF (AIQ), which tracks global AI and big data companies, also fell 3%, while the Roundhill Magnificent Seven ETF (MAGS) declined 3.35%.
Lee, however, said that markets are near the end stages of the AI sell-off because it’s become a consensus “to be shorting tech.” He noted that yields have backed down and the Federal Reserve is flipping potentially dovish.
While debt market concerns and war uncertainty linger, Lee said he would buy the current selloff. “So I think there’s a lot of opportunity. This is what I view as a coiled-strength spring because the fundamentals have been holding in,” he noted.
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