The head of research at Fundstrat Global Advisors says a specific and underappreciated investment opportunity has emerged following the market pullback that started in Q1 of this year.
In a new CNBC interview, Tom Lee says software is now one of his top picks, as investors back away from the sector amid fears of AI disruption.
But Lee notes that many software companies have great leadership, and they will likely use AI to boost their business.
“I know that investors are correctly thinking that they should question the durability of these software models over time. But many of these companies are very well managed and companies will adapt. So it’s become a sort of a derating story where investors are questioning future earnings. But now I think the risk-reward is pretty favorable. So I think for the right companies and for the best businesses, this is a great risk-reward.”
The iShares Expanded Tech-Software Sector ETF (IGV), which tracks the performance of US-traded stocks from the software industry, is down more than 25% from its September 2025 peak.
Looking at the broader market, Lee says he sees an unusual and ultimately bullish structural dynamic playing out this year. According to Lee, retail investors have sold at the market lows due to the onslaught of bad news and are now raring to ride the market at lower levels.
“2026 is unusual because in past corrections, retail investors were the steady buyers. But this year, it looked like they were selling into the lows. There’s still a lot of cash on the sidelines. Sentiment is still really muted. And in our conversations and surveys with clients, we could still see that cautious positioning.
I do think that today’s pullback is going to eventually be bought, because again, the underlying structure of the market is a good earnings visibility story with AI. And of course, demand for AI picks up if energy prices and other pressures are causing corporate margins to be under pressure. So I think investors are going to buy this dip.”
As of Monday’s close, the S&P 500 is trading at 7,200.
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