Fundstrat’s Tom Lee says tech stocks could rally at least 15%, and perhaps 20%, as he expects hedge funds to rebuild exposure after the Democrats’ midterm sweep.
Data center operators such as IREN, Hut 8, Applied Digital, and Core Scientific lost 1.2% to 13% on Wednesday. Lee called the selloff an overreaction.
Why Does Lee See a Divided Washington as a Tailwind?
Lee told CNBC’s “Closing Bell” that Democratic control will change how Washington works.
“I think it’s going to force Washington to sort of now negotiate, which is a good thing.”
Tom Lee, managing partner and head of research at Fundstrat, via CNBC
He added that the result eases pressure on the Federal Reserve (Fed). Its rate-setting panel, he said, no longer needs to weigh hikes to prove its credibility.
Early trading pointed the same way. The Dow rose 2.3%, the S&P 500 1.7%, and the Nasdaq Composite 2.1%.
Can the AI Trade Survive the Data Center Backlash?
Lee estimates that about half of hedge funds focus on technology, media, and telecom (TMT). He expects them to return to tech rather than buy names such as Coca-Cola.
Hyperscalers, the cloud giants building AI infrastructure, should lead the rebound, according to Lee. Amazon gained 7.1% and Alphabet 3.4% in early trading.
That rebuild would follow a retreat in which hedge funds sold AI stocks in their biggest stock pullback since 2017.
Lee argued that states need data center revenue, and that scarce computing power will revive bottleneck concerns.
“I think it’s all going to come back very strongly before year end.”
Tom Lee, managing partner and head of research at Fundstrat, via CNBC
However, Goldman Sachs economists warned that Democratic state and local wins could bring temporary data center construction pauses. Those pauses could affect about 45% of planned US capacity growth.
Outside tech, Lee favored financials, citing a calmer rate market, and industrials, citing lower energy prices.
Meanwhile, a CNBC host said crypto rallied as Democrats now push to pass crypto legislation they opposed before the midterms.
Lee’s rebound case weakens if opposition to data centers spreads beyond Texas and Georgia. Democrats made gains in both states, where public resistance to the buildout has grown.
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