Tom Lee: Chipmakers About to Dominate Markets Again

abstract global advisers. The chip trade, we've been calling it the epicenter, the tail wagging the dog of the markets, so to speak, for quite some time, but we did see a nice little runup in the midday session for many of these volatile memory stock names. How exactly do investors and traders reconcile the volatility versus what we could see as terms of long-term price appreciation for these particular types of stocks? Um yeah, Tom, I know it's been a a very volatile week. If if people have been long those names the last couple of weeks, it's been a rough ride, but uh these companies are at the center of one of the most important strategic initiatives for the US, you know, which is AI and AI infrastructure, and that runway has years ahead. Um and they're gonna report next week. So, I think that this pullback's healthy because it kind of gets rid of a trapped longs, right? Uh, and it reduces speculation and we saw in Korea that it was a huge margin call week. Um, but I I would still stick with those. I think those names are going to bounce later this year. So, I don't think that the trade is over, but it it is just taking a beating. How much of the market structure as it as we know it today is causing some of these types of volatile swings that maybe in turn create opportunities but at the same time create a good amount of angst and a good amount of discomfort with regard to just how people feel about whether or not this is a sustainable amount of momentum for the market. Uh yeah I mean you know it's the the reality is there's push button liquidity for everybody now institutions and individuals and I think there is that with zero day trading options and leveraged funds definitely create more volatility it is always uh creating an opportunity for the long-term investor because if someone missed uh the DRAM trade or the semi-rade and and now they can buy it or even Korean they can buy it 20% cheaper you know that's the entry point but yeah it's very difficult. I mean, my institutional clients, many of them are having very difficult years because shifts in the themes or the winds or even visibility cause instant reaction and and and it's it's something people aren't accustomed to. >> Is leverage a factor in your mind? Forget about the world of leveraged ETFs, which is a a different conversation that we can have in addition to what was going on right now. from a margin debt standpoint, from a from a people understanding whether or not they should be long short-term something or short short-term something with push button liquidity as you point out. Is that something that we should be fearful of? Has it reached a point where we could see further market structure deterioration the likes of which we have not seen up to this point? >> Uh 100%. Margin debt today is now up 54% year-over-year. Um, which is the sixth highest rise in like 60 years when you look at monthly data. And the other five times, similarly, the market consolidated over the next six months, five of the six times because when you have when when that cohort of traders is tapped out, they've borrowed money, the market is vulnerable to a draw down, which is what happened in Curry, right? In Curry, I believe this the data is 1.2 2 million brokerage accounts had a margin call and and that may be as much as 10% of actual adult brokerage accounts. I mean some massive massive correction followed. So could that happen in the US? Yeah. So that's why a rolling correction that what we're seeing now is super healthy because uh it's not the whole market coming down you know it's just pockets of it and and people have ballots like owning the mag 7 or the software stocks not just from a research analyst position like you're in or a strategist position. You're also now an asset manager that's deploying capital on behalf of shareholders and clients. If you look at the way that your models have set up and kind of developed over the course of the recent market volatility, are there now any flashing lights, whether they be red or green with regard to some of the stocks in your model or some of the stocks that are kind of on the cusp of making it in but are not there yet. What's changing? >> Yeah. And and Tom, you're referring to our Granny Shots family ETFs. You know, our GRNY is a large cap fund and outperforming year-to- date by more than 100 basis points. uh it the stock selection process is a little trickier now because the whole market is more expensive you know now it doesn't mean that stocks uh are sells here but it does the more PE rises the more it's going to be subject to the impact from a 10-year yield as a competing valuation metric so I think the 10ear yield is getting to levels like at 47 if it gets to 5% then suddenly we have to be very PE sensitive.