Tom Lee, Fundstrat's managing partner and research head, says the artificial intelligence (AI) selloff is approaching an end even as the Nasdaq declines. Lee points to interest rates below 5% and crowded bets against technology stocks. CNBC's segment showed the Dow more than 6% below the record reached earlier this month.
Lee told CNBC's Closing Bell that two pressures on markets have diminished. Lee said the Federal Reserve may be moving from a hawkish position toward a dovish position. Lee said rates have returned below 5% after markets had feared 6%.
Lee identified Nvidia, memory chips, the Magnificent 7 megacap technology stocks, software and crypto as preferred purchases. Lee also expects a broad rally in cyclical stocks because financial shares have underperformed while rates decline. Lee advanced a similar argument last week, describing Friday's decline as an opportunity to buy crypto and chip stocks. Lee separately chairs BitMine, a company with Ethereum (ETH) holdings.
Lee identified partly closed debt markets and continuing uncertainty about the war as remaining obstacles. Lee described restricted funding as healthy because restricted funding constrains excessive speculative growth. Lee said a Fundstrat report examined $30 trillion in AI spending over 25 years. Lee said the report found sufficient capital available to finance that spending. Lee said, "I think AI is a more important infrastructure build arguably than mobile."
However, Gartner senior director analyst Will Sommer expects AI revenue to fall short of the amount needed for profitable returns on planned spending. Sommer cites nearly $1 trillion in spending in 2026. Sommer also cites another $6 trillion in spending through 2030.
Lee compares AI's current position with 1997, when Lee said Cisco shares fell 50%. Sherwood reported that Cisco subsequently reached a peak in March 2000 before losing nearly 90%. The Kobeissi Letter reported that the 15 largest stocks account for a record 46.7% of the S&P 500, compared with 27.2% in 2000. Whether debt markets reopen while rates decline may determine whether Lee's prediction of a market bottom proves correct.
Tom Lee Predicts AI Selloff Near End as Rates Drop Below 5%
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Summary
Tom Lee, managing partner at Fundstrat, says the AI selloff is nearing its end as rates drop below 5%, citing Federal Reserve news pointing to a potential dovish shift. He highlighted AI + crypto news as key areas to watch, naming Nvidia, memory chips, the Magnificent 7, software, and crypto as top picks. Lee also noted restricted funding could curb speculative AI growth. Gartner’s Will Sommer warned AI revenue may fall short of $1 trillion in 2026 and $6 trillion by 2030.
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