Lee Sees AI Selloff Ending as Yields Drop Below 5%

Tom Lee from Fundstrat believes the artificial intelligence selloff is close to finishing. He points to yields falling back under 5% and a heavily shorted technology sector, while the Nasdaq continues to decline.

The Dow was trading more than 6% below the all-time high it reached earlier in the month, as reported on CNBC.

What Comes Next After the AI Selloff?

Lee serves as managing partner and head of research at Fundstrat, a Wall Street research house. On CNBC's Closing Bell, he said two obstacles have lessened.

According to Lee, the Federal Reserve could be shifting from hawkish to dovish. At the same time, yields that had markets worried about hitting 6% have now moved back below 5%.

Lee listed his top choices: Nvidia, memory semiconductors, the Magnificent 7 megacap tech names, software, cryptocurrencies. He also expects a broad cyclical rally because financial stocks have underperformed during the rate decline.

Last week Lee argued similarly, describing Friday's decline as a buying opportunity for crypto and semiconductors. Separately, he chairs BitMine, which holds Ethereum (ETH).

Will Debt Markets Reopen Before the Next Decline?

Nonetheless, Lee pointed to two lingering headwinds. Debt markets remain partially inaccessible, and uncertainty surrounding the conflict continues.

He characterized the reduced funding as beneficial, as it curbs uncontrolled speculative growth. A Fundstrat analysis examined $30 trillion in AI expenditure over 25 years. Lee said the study determined there is ample capital to support it.

“I think AI is a more important infrastructure build arguably than mobile.”

Tom Lee, Fundstrat managing partner, via CNBC

But Gartner senior director analyst Will Sommer forecasts a revenue gap. He argues AI revenue will be insufficient to generate profitable returns relative to planned investment.

He references roughly $1 trillion in spending for 2026 and an additional $6 trillion from 2026 to 2030.

Lee likens AI to 1997, when he says Cisco dropped 50%. Historically, Cisco's share price actually reached its high in March 2000 before declining nearly 90%, per Sherwood.

The consequences extend beyond technology. The top 15 stocks represent a record 46.7% of the S&P 500, according to The Kobeissi Letter, compared with 27.2% in 2000. Whether debt markets reopen as borrowing costs come down could determine if Lee's market bottom prediction proves correct.