Semiconductor selloff has Tom Lee telling AI investors to wait
Fundstrat’s Tom Lee says chip weakness reflects market nerves, not an AI top, pointing to Cisco’s wild 1990s run.
By Sal Moretti · Money Reporter
3 min read
Fundstrat’s Tom Lee is urging investors to keep their nerve through the semiconductor selloff, saying in a Monday video update that the recent wobble in stocks should settle within days and that July could still end stronger than current levels.
The broader tape looked tame Monday: MarketWatch reported that the S&P 500 finished up 0.02%, leaving the index 2.6% below its record from early June. Under the hood, though, chip names were taking hits. Micron Technology and Sandisk extended recent losses, with MarketWatch reporting one-month drops of 22% and 44%, respectively.
Lee, Fundstrat’s head of research and a well-known market bull, said the S&P 500’s choppy action over the past week is likely close to ending. He also argued that the semiconductor retreat is being driven by specific worries and positioning, rather than proof that the artificial-intelligence trade has peaked.
Why are semiconductor stocks selling off?
Lee pointed to several pressure points. He said markets have been unsettled by higher oil prices tied to fears of a wider U.S.-Iran war, which fed inflation concerns and pushed Treasury yields higher.
In his update, Lee said oil has since fallen by $10 after a de-escalation, while yields have given back nearly half of their recent rise. He also said prediction-market odds of a U.S. invasion of Iran had dropped to 25%.
The Federal Reserve is another worry. Lee said investors have been pricing in a greater chance of a rate increase at the Fed’s Wednesday decision, citing odds of a 25-basis-point move at 27% in prediction markets and 38% in Fed futures, far higher than three months earlier. His own view, according to the update, is that the chance of a hike remains low.
On chips, Lee cited reports that some Chinese companies are building machines that could compete with ASML. He also pointed to Nvidia’s announcement that it would guarantee $250 billion for an OpenAI data-center project, a plan that has raised concerns about circular spending in the AI boom.
He said recent weak stock reactions to better-than-expected technology earnings do not necessarily mean profit growth is already fully priced in. In his reading, investors are jumpy across the market and some may be setting up an August rotation by buying software shares while shorting semiconductors.
Lee said Magnificent Seven stocks, software names and even crypto have been recovering during the same stretch.
What does Cisco have to do with the AI trade?
Lee used Cisco Systems’ internet-era run as the cautionary tale for investors tempted to bail after sharp AI-stock pullbacks. Cisco was a star of the late-1990s networking boom, and its stock saw violent drops during a much larger advance.
According to Lee, Cisco climbed from 80 cents to $9 by 1997, then dropped 40%. A year later, he said, it reached $18. The stock then fell 41% to $9 in 1998 before reaching $80 two years later.
Lee said that amounted to a 100-fold move and argued that a similar long-term pattern could play out in the AI trade. He invoked the late Charlie Munger’s view that the biggest money is made by waiting rather than constant buying and selling.
MarketWatch reported Tuesday morning that U.S. stock-index futures were mixed as Treasury yields slipped, oil futures fell and gold traded around $4,045 an ounce. The Federal Reserve began its two-day policy meeting Tuesday, while PayPal, Boeing, Coca-Cola and UPS were among the companies scheduled to report earnings during the day.
This story draws on original reporting from MarketWatch.