Strategist Tom Lee says he's buying the AI stock dip, and Cisco holds the key

By Barbara Kollmeyer

Lee has his eye on earnings and a Nvidia conference in Berlin this week

Tom Lee will keep close watch on Nvidia's GTC Berlin conference this week. German Chancellor Friedrich Merz, and NVIDIA CEO Jensen Huang were pictured in Berlin on Monday.

Unfazed by market jitters surrounding stocks lately, strategist Tom Lee says he's "buying the AI dip."

"I think it's turned into a panic around AI because the Korean stock market has taken out the July lows and people are talking about an AI debt problem," said Lee, the head of research at Fundstrat, in a video bulletin to clients late Monday.

Nasdaq-100 futures (NQ00) pointed to a drop on Tuesday after a 1.1% rally for the Nasdaq Composite COMP on Monday. Korea's KOSPI stock index KR:180721 fell 3.7% on Tuesday after a recent multi-session pullback.

Korea stocks are seen by some as an AI proxy trade, and losses for the index and its big tech players such as SK Hynix (KR:000660) (SKHY) have weighed on U.S. semiconductors and AI sectors at times.

Lee noted the "tale of two markets" facing investors lately. Month-to-date through Monday's close, the S&P 500 equal-weighted index XX:SP500EW was up 2.56% versus a 0.51% gain for the market-capitalization-weighted S&P 500 SPX index, according to Dow Jones Market Data. The latter is dominated by a small group of large technology and AI companies.

The last time the equal-weighted index marked a new all-time high was Aug. 13, while the S&P 500's latest record was Oct. 6.

The strategist makes his bullish case on U.S. stocks by viewing the pullback through the lens of Cisco's (CSCO) performance of the early 1990s. The tech group traded around 80 cents during the launch of public internet in 1993 and 1994 - as a provider of routers it was an immediate beneficiary, he noted.

By early 1997, shares had surged to a split adjusted $9 per share, but stress had been building from a warning late the prior year by then Fed Chairman Alan Greenspan of "irrational exuberance" in the stock market. The stock went on to slump to $5 later that year, driven by worries over policy tightening, analyst caution on Cisco revenue growth and competition worries around internet protocol switches

"A year later, Cisco was at $18 off those lows," said Lee. The stock fell again during in 1998 as markets grappled with turmoil over Russia defaulting on its debt and the collapse of hedge fund Long-Term Capital Management. Ultimately, the stock reached $80 per share, and 100 times from 80 cents in 2000, he said.

"I kind of think we are here today. So much as things are bumpy, I think it's all just a correction, so I'm buying the AI dip."

Lee said he'll be watching Nvidia's GTC Berlin conference - a potentially "good-course correction reset [of] expectations" - where CEO Jensen Huang will be the keynote speaker on Wednesday.

"It's a semiannual conference and I think there's a lot of good coverage that could come out of that. So to me, I'm still buying this dip, especially this AI dip," he said.

Lee also flagged "impressive" earnings growth seen so far in the third-quarter reporting season of 23.8%, with a heavy schedule ahead for the next two weeks, notably on the tech side. Meta (META) and Tesla (TSLA) will report on Wednesday and SpaceX (SPCX) after Tuesday's close.

The strategist said stocks also look like a buying opportunity because overall hedge fund net positioning is down to levels not seen since Liberation Day, citing data from Goldman Sachs. Some mechanical derisking saw those funds decrease long positions and increase shorts or bets against stocks last week, likely to "preserve what has been a good year," he said.

However, that also leaves a "huge amount of room for them to eventually reengage with the market," said Lee.

-Barbara Kollmeyer

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10-20-26 0615ET