Fundstrat’s Tom Lee says the artificial intelligence trade remains undervalued even after a string of rallies, and he believes another corner of the market could offer even greater upside.
In a new CNBC interview, the investor points to Oracle’s surge after earnings as proof that investors continue to underestimate the AI theme.
He ties the stock’s move to a shift in how markets are valuing long-term demand for cloud and data services.
“Oracle surging 41% after they report earnings tells me that AI is an undervalued sector, because how else do you explain a stock that is as large as Oracle, gaining as much as it is, unless it shows investors are really underestimating the future growth of AI…?
I think AI as a theme is continually underestimated because I think a lot of people think this is money being spent without return. Oracle is showing you that there’s a lot of future growth.”
While Lee believes that AI is undervalued, he identifies one stock group that he thinks has been depressed due to the high-interest-rate environment.
“I wouldn’t want to try to pick a slice of AI to talk about being undervalued. But if we think AI is undervalued, what’s even more undervalued is small caps, because that’s been held at bay because the Fed has not been cutting rates.
Fed’s been on hold all year. And for the first time since last year, the Fed is cutting in September. A September cut after a pause has only happened in 1998 and 2024. And both times are good periods for small-cap stocks.”
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