Stocks Poised for Rebound After AI Trade Sell-Off, Says Tom Lee

Stocks are expected to rebound despite a recent sell-off in AI-related companies, according to Fundstrat Global Advisors co-founder Tom Lee. Lee, known for his accurate market forecasts, stated in a CNBC interview on Friday that companies at the forefront of the U.S. artificial intelligence initiative still possess significant growth potential. The current market pullback is viewed as a healthy consolidation that will temper speculation ahead of upcoming earnings reports from the AI sector. Lee believes these AI stocks will recover later this year, indicating that the investment trend is not over.

Lee acknowledged that the widespread use of leverage in the market is contributing to increased volatility. He described zero-day trading options and leveraged funds as "push-button liquidity." Margin debt has surged by 54% annually, representing the sixth largest increase in the past 60 years, according to Lee's estimates. Historically, the market has consolidated following similar top increases in margin debt.

This dynamic was exemplified in South Korea, where a nationwide stock trading surge, fueled by chipmakers SK Hynix and Samsung benefiting from the AI boom, led to a rally driven by leveraged ETFs. However, this boom has recently collapsed. The Kospi index has fallen 27% from its record high last month, entering bear market territory. Lee reported that 1.2 million brokerage accounts in South Korea faced margin calls, accounting for up to 10% of all Korean accounts, forcing traders to sell holdings to cover their debts.