Why strategist Tom Lee believes the AI and crypto selloffs are almost over

By Barbara Kollmeyer

Fundstrat co-founder also sees Mag 7 selling nearing an end

Fundstrat's Tom Lee is calling the end, nearly, of the AI scare trade.

Nvidia delivered solid results, but shares are slipping as Thursday's trade kicks off and investors near the end of what has been a tough month for stocks tied to the AI trade.

Nvidia CEO Jensen Huang also declared "markets got it wrong" over the software selloff, so we'll see if his view takes hold.

You'll find some concurrence with Huang in our call of the day from co-founder and head of research at Fundstrat, Tom Lee, who believes that selloffs for software, Magnificent 7 stocks and crypto are nearly done.

Lee said markets tend to bottom on bad news, flagging the viral AI doom post from Citrini Research that shook up investors at the start of the week.

"I think that we're seeing signs that we could be far along into that bottom," he said.

The Mag 7 stocks MAGS have been rising since Feb. 17. Software stocks IGV have gained for the last two days and he thinks they bottomed on Feb. 23, he told clients in a video blog.

Lee believes investors are 95% into the decline of Mag 7 as the rotation out of those stocks nears extreme levels. He says the broader software decline is almost over, in its final weeks, and cryptocurrencies are also in the final weeks of their own pullback.

A supportive stat for markets overall that he points to is the so-called January barometer. The argument is that if the S&P 500 SPX rises for the first week of January and the month overall - the index gained 1.5% and 1.3%, respectively - February tends to be a "payback"month, with a median decline of 0.4%.

That sets the stage for an even stronger March, with an average historical gain of about 2%, followed by an even better April, says Lee.

Lee is sticking to some themes he flagged headed into 2026, such as energy XLE and basic materials XLB, both of which rallied this year.

Industrials, financials and small-caps are also poised to gain in a "stronger 2026," and he's also keen on Mag 7 stocks, bitcoin (BTCUSD) and Ethereum (ETHUSD), given he believes the selloff for those assets is nearly over.

Lee it should be noted is chairman of Ethereum treasury company BitMine Immersion Technologies (BMNR), and that crypto is down 30% year to date, versus a 21% drop for bitcoin.

One of his arguments about an Ethereum bounce has to do with how much the crypto has unwound its prior bull market. In 2020, it was a 96% retracement, in 2022 that was 83%, in 2025 it was an 84% retracement. The current one is up to 90%, so he thinks that process is nearly finished.

Lee is regarded by some as one of Wall Street's more accurate forecasters who correctly told investors to buy stocks during pandemic lows and nailed the 2023 bull market. But he's also made pretty wrongheaded calls on crypto, suggesting last summer that bitcoin could "easily get to $200,000" by the end of 2025, and has predicted it could top $1 million in a few years.

Lee also weighed in on Nvidia's earnings, pointing to record quarterly revenue and strong net income, plus shares trading at less than 20 times forward earnings, so about half of Costco's (COST) multiple.

Read: Here's what's necessary to return the incredibly concentrated U.S. stock market to normal levels

The markets

U.S. stocks DJIA SPX COMP are mixed at the start of trading, with gold (GC00), silver (SI00) and oil (CL00) under pressure.

   Key asset performance                                                Last       5d     1m      YTD     1y 
   S&P 500                                                              6946.13    0.94%  -0.46%  1.47%   16.62% 
   Nasdaq Composite                                                     23,152.08  1.75%  -2.96%  -0.39%  21.37% 
   10-year Treasury                                                     4.054      -2.60  -18.60  -11.80  -21.10 
   Gold                                                                 5203.8     4.16%  -3.83%  20.12%  77.50% 
   Oil                                                                  65.62      1.05%  3.34%   14.30%  -4.65% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Weekly jobless claims rose modestly to 212,000 from 208,000. Fed Vice Chair for Supervision Michelle Bowman will testify to Congress at 10 a.m.

Nvidia shares (NVDA) are rising slightly following blowout earnings that still failed to trigger a bigger reaction.

Snowflake stock (SNOW) is rising, following mixed earnings from the data-warehousing software group.

Nutanix (NTNX) is surging after news of an investment by chip maker Advanced Micro Devices (AMD) in the cloud computing group.

Salesforce (CRM) announced a $50 billion stock buyback, but mixed results, and shares are slightly lower.

Trade Desk stock (TTD) is sinking after the ad-tech company's revenue forecast fell short of expectations.

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The chart

The chart from Citadel Securities, its response to the viral Citrini piece, shows how despite AI job displacement worries, software engineer job postings are rising this year. Citadel's macro strategist Frank Flight asserts that AI adoption will be slower than many think and therefore abrupt labor disruption is unlikely to happen. "It seems more likely that AI will be a complement rather than a substitute for labor is many areas," he writes.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   TSM     Taiwan Semiconductor Manufacturing 
   GME     GameStop 
   MSFT    Microsoft 
   PLTR    Palantir 
   INFY    Infosys 
   AMZN    Amazon 
   AAPL    Apple 
   NFLX    Netflix 

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-Barbara Kollmeyer

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(END) Dow Jones Newswires

02-26-26 0947ET