Tom Lee Says AI and Crypto Selloffs Are Nearing an End

Veteran market strategist Tom Lee, co-founder of Fundstrat Global Advisors, believes the recent selloffs in AI-related stocks, the Magnificent 7, and cryptocurrencies are nearly finished.

After a volatile February that punished software stocks, chipmakers, and digital assets, Lee says markets may already be 95% through the decline.

His message aligns, at least partially, with comments from Jensen Huang, CEO of Nvidia, who recently declared that markets “got it wrong” regarding the AI software selloff.

What Is News

Tom Lee says the AI-driven stock and crypto pullbacks are nearing their end.

He believes the Magnificent 7 decline is about 95% complete.

Software stocks may have already bottomed around Feb. 23.

Cryptocurrencies, including Bitcoin and Ethereum, are likely in their final weeks of retracement.

Lee points to historical seasonal patterns (the “January barometer”) suggesting stronger gains in March and April.

Nvidia posted strong earnings but shares remain under pressure.

Lee maintains bullish positioning in energy, materials, financials, small caps, Mag 7 stocks, and crypto.

The AI “Scare Trade”

February has been difficult for AI-linked equities. Software valuations have contracted sharply amid concerns that generative AI agents could cannibalize traditional SaaS models — a phenomenon some analysts have dubbed the “SaaSpocalypse.”

Despite solid earnings from Nvidia, investors have remained cautious, especially toward:

Software ETFs (like IGV)

The Magnificent 7 mega-cap tech stocks

Cryptocurrencies

Lee argues markets tend to bottom on bad news, referencing a widely circulated bearish AI post from Citrini Research that shook investor sentiment earlier this week.

“I think we’re far along into that bottom,” Lee told clients in a recent video update.

What Is Analysis

Seasonal Tailwinds

Lee cites the “January barometer,” a historical market pattern suggesting:

If the S&P 500 rises in the first week and overall month of Januar

February often becomes a modest “payback” month,

Followed by stronger average gains in March and April.

In 2026, the S&P 500 rose 1.5% in the first week of January and 1.3% for the month overall — fitting the historical setup.

If the pattern holds, Lee expects:

Roughly 2% average gains in March.

Even stronger performance in April.

Seasonality alone isn’t determinative, but it supports his thesis that the pullback may be near completion.

The Magnificent 7 Rotation

Lee suggests the rotation out of mega-cap tech is approaching extreme levels. He believes the Magnificent 7 stocks are roughly 95% through their correction.

This implies:

Selling pressure may be exhausted.

Positioning is becoming more favorable.

Risk-reward may be shifting back toward upside.

Importantly, Nvidia’s valuation now trades at under 20 times forward earnings — roughly half the multiple of companies like Costco. For Lee, that valuation gap suggests pessimism may be overdone.

Crypto: Nearing the End of the Retracement?

Lee is particularly focused on Ethereum and Bitcoin.

Crypto markets are down roughly 30% year-to-date.

Ethereum has retraced about 90% of its previous bull cycle gains.

Historically, Ethereum retraced:

96% in 2020.

83% in 2022.

84% in 2025.

The current retracement nearing 90% suggests, in Lee’s view, that downside exhaustion is close.

However, it’s worth noting that Lee has previously made aggressive crypto forecasts — including predicting Bitcoin could reach $200,000 by the end of 2025 — which have not materialized.

The Bigger Question: AI as Disruptor or Complement?

Underlying the selloff is a larger debate:

Will AI eliminate large swaths of white-collar labor and undermine software businesses? Or will it complement existing systems?

Some market participants fear abrupt labor displacement and SaaS model erosion.

Yet data cited by Citadel Securities suggests software engineering job postings are rising this year — potentially indicating AI adoption may be more gradual and complementary than apocalyptic.

If AI augments productivity rather than replaces entire business models overnight, current valuation compression could prove excessive.

Risk Factors

Despite Lee’s optimism, risks remain:

Continued volatility in AI earnings.

Regulatory uncertainty.

Crypto market sensitivity to liquidity and macro shifts.

Ptential overexuberance if speculative momentum returns too quickly.

Markets can overshoot in both directions.

Bottom Line

Tom Lee believes the AI and crypto selloffs are in their final phase, with technical exhaustion and seasonal patterns setting up a potential spring rebound.

His thesis hinges on three pillars:

Rotation extremes in mega-cap tech.

Historical retracement patterns in crypto.

Seasonality favoring March and April gains.

Whether this proves prescient — as some of Lee’s past bullish calls have been — or overly optimistic will depend on how quickly investor confidence stabilizes around AI’s economic impact.

For now, Lee’s message is clear: the panic phase may be ending, and positioning for recovery could soon make sense.