A Buying Setup in Crypto and Semis Is What Tom Lee Sees After Last Week's Drop

Friday’s selloff is a buying opportunity rather than the start of a deeper decline, according to Fundstrat Global Advisors’ Tom Lee. He highlighted cryptocurrencies, memory chips and semiconductor names that have retreated to technical support.

Wall Street’s fear gauge, the Cboe Volatility Index (VIX), climbed sharply during the session. At the same time, rising oil prices stirred concerns that tensions might escalate over the weekend.

Where Does Crypto Fit in Lee’s Buy Call?

In an appearance on CNBC’s Closing Bell, Lee, who leads research at Fundstrat, said AI fears intensified this week. He conceded that debt markets tied to AI may lack confidence. Still, he argued that AI’s underlying fundamentals and drivers remain intact.

According to Lee, a rally could be ahead, with Mark Newton, Fundstrat’s technical strategist, seeing a bottom on Friday or Monday.

Lee placed crypto in the same buy category as memory, semiconductors, AI cloud providers and technology broadly. In his view, these areas have all retreated to support levels, the price zones where buyers have tended to show up historically.

“I think the setup is for a buy on the memory, the semis, the neo clouds, tech broadly, crypto. I think that they’ve all pulled back to support levels at a time when people have become maybe very fearful of fundamentals,” Lee said

Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management, had a different read, saying higher interest rates were the culprit. Those rates, he said, weigh on the more speculative parts of the AI build-out, such as cloud provider CoreWeave.

According to Greenhaus, ASML and Taiwan Semiconductor Manufacturing Company (TSMC) have both stated that demand remains strong. Still, he warned that the troubles at AI cloud providers should not be read as an early indicator for the wider market.

“how many canaries have we killed in the coal mine over the last 3 years”

Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management, on CNBC

Can Funding Keep Up With Demand?

Ed Clissold, chief U.S. strategist at Ned Davis Research, said capital comes with a price. The market is still figuring out that cost. Even with demand strong, a slowdown in the build-out is possible, he said.

Clissold said large caps avoided September’s typical weakness, while small caps showed it. He suggested Friday’s drop may partly reflect that catch-up.

He added that third-quarter earnings should bring answers in a couple of weeks. In the prior quarter, S&P 500 profit growth was forecast at 25% and finished at 32%. For the current quarter, analysts anticipate 25% to 26%.

For the most part, the panel regarded demand as a settled question and instead debated financing, putting the cost of capital at the center of the AI build-out.