During an interview with CNBC, Lee argued that several of the pressures weighing on technology stocks are beginning to ease now.
- Lee dismissed concerns of a broader decline in tech stocks, saying that he would buy the dip.
- The strategist pointed to a shift in the interest-rate backdrop as one reason for his optimism.
- At the same time, he argued that the weakness in technology stocks does not necessarily signal that the underlying AI investment cycle is breaking down.
Fundstrat Managing Partner Tom Lee on Friday said that he sees the recent selloff in AI stocks as an opportunity rather than the start of a deeper unwind.
During an interview with CNBC, Lee argued that several of the pressures weighing on technology stocks are beginning to ease now.
His comments come amid a sharp selloff in tech stocks, with the Nasdaq Composite falling 2.6% on Thursday, suffering its worst single-day decline since June.
The VanEck Semiconductor ETF (SMH) and the Philadelphia Semiconductor Index (SOX) also fell 6% and 7% respectively on Thursday, their biggest single-day declines since June.
Lee Dismisses Concerns, Says Selloff Is Nearing Its End
Lee dismissed concerns of a broader decline in tech stocks, saying that he would buy the dip.
“I think we’re near the end stages of the sell off because it’s become a consensus short to be shorting tech,” Lee said.
The strategist pointed to a shift in the interest-rate backdrop as one reason for his optimism. Treasury yields have moved back below 5% after investors had worried that rates could climb toward 6%, while Lee said the Federal Reserve could be “flipping potentially dovish.”
At the same time, he argued that the weakness in technology stocks does not necessarily signal that the underlying AI investment cycle is breaking down.
“We’re continuing to see astounding discoveries made by AI,” Lee said, arguing that concerns surrounding AI are actually helping prevent the market from becoming a speculative bubble. He also pointed to tighter debt markets as a restraint on excessive speculation.
“I think it’s actually a very healthy correction that way,” Lee said, arguing that constrained financing is preventing a “runaway speculative boom.”
Lee Sees Cisco-Like Setup, Likes Nvidia And Software
Lee compared the current environment with the late-1990s technology market, specifically pointing to Cisco Systems Inc.’s (CSCO) sharp decline in 1997 before the networking giant resumed its advance.
He pointed out that Cisco experienced a major drawdown during this period as investors grappled with concerns over monetary policy and the sustainability of technology valuations. Lee added that a sharp correction did not prevent the broader technology investment cycle from continuing.
Lee believes that the current cycle is similar to the one he mentioned above, adding that he sees opportunities in companies addressing AI infrastructure bottlenecks, memory stocks, Nvidia Corp. (NVDA) and the “Magnificent Seven”.
“I think the AI and the bottlenecks are the memories and the Nvidia’s and the Mag 7. They’re being sold because it is easy to short them now,” he said.
Beyond the major AI hardware names, Lee said he also likes software and cryptocurrency, while adding that there is potential for a broader cyclical move.
Lee also argued that the AI infrastructure buildout remains enormous, estimating $30 trillion in spends over the next 25 years. He said the scale could ultimately make AI a more important infrastructure investment than previous major technology buildouts.
During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, gained 0.15%; the Invesco QQQ Trust ETF (QQQ) edged up by 0.07%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.13%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the ‘extremely bearish’ territory at the time of writing.
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