Nvidia shares experienced a significant decline of nearly 17% on Monday, raising concerns about the future of the artificial intelligence trade. The sell-off, which also affected Broadcom and other tech sectors, resulted in a more than 5% drop in the tech market. This marked Nvidia's worst decline since March 2020, a period that ultimately turned into a lucrative opportunity for investors. Tom Lee, head of research at Fundstrat Global Advisors, suggests that the current market reaction may be an overreaction and sees the potential for a buying opportunity.
"To me, it's an overreaction," said Tom Lee, head of research at Fundstrat Global Advisors.
The sell-off was triggered by news of a Chinese AI startup, DeepSeek, which sparked fears about Nvidia's standing in the AI trade. Despite the sharp decline, Lee remains optimistic about Nvidia's prospects and is confident that the company's shares will not become worthless, akin to "Betamax," a term used to describe obsolete technology.
"Personally surprised if Nvidia became Betamax in the past week," remarked Lee.
Lee emphasizes that the financials sector presents a promising opportunity this year, making it his top S&P 500 sector idea. With the new administration, a dovish Federal Reserve, and low yields creating favorable conditions, financials are poised for potential growth. These factors could lead to an upswing in capital markets activity and favorable multiples for banks.
"I think financials to me represent a pretty good fundamental case of change this year because we have a new administration, a Fed that is dovish, yields that aren't painful for banks – and a time when it could lead to upside for capital markets activity, and multiples are low," stated Lee.
While the market's reaction to Nvidia's decline is concerning, Lee views it as an opportunity rather than a setback. He urges investors to consider recent events as a buying opportunity, similar to the March 2020 decline that eventually yielded significant returns.
"Nvidia's decline is the worst since March 2020, and we know that ended up being a huge opportunity for investors. It's not a fun day, but I'd be looking at this as an opportunity," Lee advised.