Tom Lee, JPMorgan Manager View AI Rout as Normal, See Rally Potential

Tom Lee of Fundstrat stated he would purchase the artificial intelligence stock decline and anticipates a 15% increase in the Nasdaq. He released a video update on Friday, one day following the tech-centered Nasdaq-100's 6.36% drop, which wiped out $2.3 trillion.

Investors in semiconductor and AI shares suffered the largest declines. However, Lee noted that his Granny Shots US Large Cap ETF (GRNY), which holds many of those stocks, has gained 7.5% year-to-date compared to the S&P 500's 11.7%.

Why Lee Views the AI Rout as a Buying Opportunity

Lee attributed the decline to concerns that a Democratic 'blue tsunami' in Congress could stifle AI expenditures.

He referenced August as a precedent. According to Lee, the Nasdaq-100 dropped approximately 12% between June 30 and early August, after which the S&P 500 surged 15%.

Lee argued that Democrats might postpone spending on data centers but will not halt it entirely. He also stated that a divided government reduces White House pressure on the Federal Reserve (Fed).

“But bottom line, I think that I would be buying this AI dip.”

On Wednesday, Lee initially suggested a 15% to 20% technology rally, ahead of Thursday's artificial intelligence chip selloff. Lee, who additionally chairs BitMine, an Ethereum (ETH) treasury firm, pointed to the cryptocurrency rebound as a sign of a bull market.

Jack Caffrey, an equity portfolio manager at JPMorgan Asset Management, also described the decline as routine. He told CNBC on Friday that the Nasdaq typically experiences one or two corrections annually.

Caffrey said that companies he met with this week reported order backlogs ranging from 12 to 24 months. He characterized this as a long-term earnings narrative that investors can support.

What Factors Could Undermine Lee's 15% Rebound Prediction?

Lee's argument relies on declining bond yields and oil prices. However, this week's economic data moved in the opposite direction.

On Thursday, Brent crude was trading close to $98 per barrel. On Friday, U.S. payrolls increased by 165,000 in October, significantly exceeding the approximately 65,000 forecast.

That data boosted expectations for a Federal Reserve rate hike in December. Lee had previously argued that the Fed currently faces reduced pressure to tighten policy.

Caffrey had a different perspective. Speaking prior to the jobs report, he stated that the Fed is on a course of gradual tightening, and that a strong report would maintain that path. October payrolls more than doubled expectations.

According to Stocktwits, tech analyst Dan Ives had predicted a 10% to 12% decline in semiconductor stocks following a Democratic sweep. The Philadelphia Semiconductor Index dropped 12.25% on Thursday alone.

Caffrey noted that Thursday's selloff affected over 400 stocks in the S&P 500, not only the AI leaders. He said that risk managers and margin calls, rather than portfolio managers, were behind many of the trades.

Semiconductor stocks rebounded on Friday. Advanced Micro Devices (AMD) gained roughly 8% following a 17% decline.

On October 26, Lee informed viewers that the AI selloff was concluding. Ten days afterward, the Nasdaq entered a correction. Jim Cramer had described Friday's jobs data as the true test of the midterm rally. The Federal Reserve's next rate decision is scheduled for December.