Tom Lee predicts 15% Nasdaq rally after $2.3T AI drop

Fundstrat’s Tom Lee stated he would buy the recent AI stock dip and expects a 15% rally in the Nasdaq, a prediction made in a video update posted Friday. This followed a day when the tech-heavy Nasdaq-100 index fell 6.36%, erasing $2.3 trillion in market value. Lee, who also chairs Ethereum treasury firm BitMine, identified the selloff as a buying opportunity despite the sharp decline in chip and AI stocks.

Political Fears Drive the Selloff

Lee attributed the market drop to fears that a Democratic “blue tsunami” in Congress would choke off AI spending. He compared the current volatility to market movements from June 30 to early August, when the Nasdaq-100 fell approximately 12% before the S&P 500 rallied 15%. Lee argued that while Democrats may delay data center spending, they will not stop it entirely. He further suggested that a split Washington would ease White House pressure on the Federal Reserve, potentially altering the monetary policy outlook.

Lee first outlined a forecast for a 15% to 20% tech rally on Wednesday, prior to the AI chip crash on Thursday. He cited the rebound in cryptocurrency markets as a signal of a broader bull market. In his video, Lee noted that his Granny Shots US Large Cap ETF (GRNY), which holds many of the affected stocks, is up 7.5% year-to-date, compared to 11.7% for the S&P 500. “But bottom line, I think that I would be buying this AI dip,” Lee said.

Backlogs and Bond Yields

Jack Caffrey, an equity portfolio manager at JPMorgan Asset Management, also characterized the drop as normal. He told CNBC on Friday that the Nasdaq should experience one or two corrections a year. Caffrey stated that companies he met with during the week reported order backlogs ranging from 12 to 24 months, describing this as a long-term earnings story that investors can buy into. He noted that risk managers and margin calls, rather than portfolio managers, were driving many of the trades during the selloff.

However, recent economic data has complicated the case for a rebound. Lee’s argument relies on falling bond yields and oil prices, but this week’s data moved in the opposite direction. Brent crude traded near $98 a barrel on Thursday. On Friday, US payrolls rose 165,000 in October, significantly exceeding the expected 65,000. This strong jobs data increased bets on a Federal Reserve rate hike in December. Caffrey, speaking before the jobs data release, noted that the Fed was on a path of gradual tightening and that a hot report would keep it there.

The Philadelphia Semiconductor Index fell 12.25% on Thursday, and the selling impacted more than 400 stocks in the S&P 500. Tech analyst Dan Ives had previously forecast a 10% to 12% drop in chip stocks following a Democratic sweep, according to Stocktwits. Despite the losses, chipmakers saw a bounce on Friday, with AMD rising about 8% after a 17% fall. Jim Cramer described Friday’s jobs data as the “midterm rally’s real test.” The Federal Reserve’s next rate decision is scheduled for December.