After Democratic Sweep, Fundstrat's Lee Sees Hedge Funds Rebuilding and Tech Gaining 15%-20%

A gain of at least 15% — possibly 20% — is what Fundstrat’s Tom Lee expects for tech stocks, based on his prediction that hedge funds will rebuild exposure after the Democrats’ midterm sweep.

On Wednesday, shares of data center firms IREN, Hut 8, Applied Digital, and Core Scientific fell by between 1.2% and 13%. Lee dismissed the decline as an overreaction.

Why a Divided Washington Looks Like a Tailwind to Lee

Speaking on CNBC’s “Closing Bell,” Tom Lee — Fundstrat’s managing partner and head of research — said the way Washington operates will shift under Democratic control.

“I think it’s going to force Washington to sort of now negotiate, which is a good thing.”

Lee went on to say the outcome takes pressure off the Federal Reserve. In his view, the Fed’s rate-setting committee no longer has to consider increases simply to demonstrate its credibility.

Initial market action pointed in the same direction: the Dow was up 2.3%, the S&P 500 gained 1.7%, and the Nasdaq Composite advanced 2.1%.

Is the AI Trade Resilient Enough for the Data Center Backlash?

Roughly half of hedge funds are concentrated in technology, media and telecom — the TMT sector — Lee estimates. He expects those funds to come back to tech instead of picking stocks like Coca-Cola.

The rebound should be led by hyperscalers — the cloud giants constructing AI infrastructure — in Lee’s view. Amazon rose 7.1% and Alphabet 3.4% in early trade.

Such a rebuilding effort would come after hedge funds offloaded AI shares in their steepest stock retreat since 2017.

States need the revenue data centers bring, and scarce computing power will rekindle bottleneck concerns, Lee argued.

“I think it’s all going to come back very strongly before year end.”

Goldman Sachs economists cautioned, though, that Democratic victories at the state and local level could prompt temporary halts in data center construction. Such pauses could touch roughly 45% of planned US capacity growth.

Lee also likes financials — helped by a calmer rate market — and industrials, which he tied to cheaper energy prices.

Separately, a CNBC host noted that cryptocurrencies were rising as Democrats push for digital-asset legislation that they had opposed ahead of the midterms.

Lee’s recovery argument loses strength if anti-data-center sentiment moves past Texas and Georgia. Democrats advanced in both states, where local opposition to the construction boom has intensified.