Newsletter

• In an interview with CNBC, Tom Lee stated that he believes the sell-off of AI shares has reached its bottom, citing the fact that supply remains tight as the reason.
• He pointed out that the reaction of the crypto market to Binance's hack indicates that most of the selling pressure may have passed.
• However, the strong demand for AI has not protected chip manufacturers from concerns regarding financial reports, and the outflow of funds from Bitcoin funds also indicates that investors are still withdrawing their capital.

Co-founder Fundstrat and Chairman Bitmine Tom Lee indicated that the sale of AI shares has hit rock bottom. He believes that demand is still constrained by supply, and the reaction of the crypto market to a hack involving billions of dollars suggests that investors may have already completed a significant portion of their sales.

“I think we have hit rock bottom,” Lee said in an interview on the program Squawk Box with CNBC. By the time he made this judgment, the downward trend was no longer limited to individual AI companies: large tech stocks were also included in the funds that many people use for retirement investments. (Disclosure: Tom Lee is one of the investors of Decrypt, the parent company of Dastan.)

Lee also acknowledges that it is very difficult to identify when prices will stop falling. "The bottom is dangerous because you don't know how much further there can be a decline from there," he said.

His judgment is based on such a distinction: whether an industry is unable to expand fast enough, or whether it has already built capacity that exceeds customer demand.

“The AI market is still very tense. This is not a market with overcapacity,” said Lee. He believes that spending restrictions, including political obstacles, are slowing down growth, but this does not mean that this round of prosperity has reached its peak.

Strong demand still cannot conceal financial report issues

This distinction is important for companies that build the underlying infrastructure for AI, which includes data centers, the facilities that house the computers that run these systems. A shortage in supply may cause customers to wait longer, but it may also prevent suppliers from turning orders into revenue.

On Friday, Intel provided a particularly striking example: after releasing disappointing fourth-quarter earnings guidance, its stock price plummeted by nearly 30% to $65.76. Its data center and AI business revenues increased by 78% year-over-year, reaching $7.3 billion, but manufacturing constraints limited its ability to meet demand.

Intel expects quarterly revenue to be between $15 billion and $16 billion, with that figure being about $1.6 billion lower than what analysts anticipated. Its weaker PC business has also added to the pressure, indicating that healthy demand for AI can coexist with a decline in stock prices.

“AI brother” and “crypto brothers” are on the same boat

The second argument of Lee shifts beyond the stock market. He mentioned that the crypto market's reaction to the Binance security vulnerability incident was relatively limited. Binance initially estimated that the incident affected approximately $6.3 billion.

"If the crypto market is a leading indicator of risk appetite, then you can see that to some extent, people have already been washed out," he said. In his interpretation, if a market does not experience a more significant decline after digesting negative news, it may mean that there are not many sellers left who can continue to push prices down.

However, Bitcoin still fell by about 4% on Friday to around $76,400, and more than $1.3 billion in borrowed funds were forcibly liquidated. American spot Bitcoin exchange-traded funds (ETFs), which hold Bitcoin and are traded like stocks, also saw outflows of $643.2 million on that day, marking the largest single-day outflow since October.

That being said, a 4% decline can occur even during a bull market, and in the eyes of crypto traders, this is still considered a relatively normal fluctuation.

On Friday, Binance stated that approximately $3 billion of the affected assets had been frozen, and pledged to use its emergency reserves and company funds to cover the losses.