Tom Lee Sees Democrats Handing Tech a 15% to 20% Rally

Tom Lee thinks the Democrats' midterm sweep is rocket fuel for tech. The Fundstrat managing partner and head of research took to CNBC's “Closing Bell” with a call that tech could run at least 15%, maybe 20%, as hedge funds rebuild exposure they just dumped. Hyperscalers — the cloud giants building out AI infrastructure — should lead the rebound, he said.

The tape was already leaning his way. Early trading had the Dow up 2.3%, the S&P 500 up 1.7% and the Nasdaq Composite up 2.1%, with Amazon climbing 7.1% and Alphabet up 3.4%. That bounce follows a rough stretch in which hedge funds sold AI stocks in their biggest pullback since 2017. Lee figures the money comes back fast: roughly half of all hedge funds focus on tech, media and telecom, he estimates, and he doesn't see them rotating into names like Coca-Cola instead.

His Washington read is simple. Democratic control changes how the place operates, and Lee argues that forces negotiation rather than gridlock — “I think it's going to force Washington to sort of now negotiate, which is a good thing,” he told CNBC. He also said the result takes pressure off the Federal Reserve, whose rate-setting panel no longer needs to float hikes to prove its credibility.

Data center operators got clobbered Wednesday: IREN, Hut 8, Applied Digital and Core Scientific slid, with losses ranging from 1.2% to 13%. Lee waved it off as an overreaction, pointing to states that need data center revenue and the likelihood that scarce computing power drags bottleneck worries back into the conversation. “I think it's all going to come back very strongly before year end,” he said.

Not everyone is signing on. Goldman Sachs economists warned that Democratic wins at the state and local level could bring temporary pauses in data center construction, potentially touching about 45% of planned US capacity growth. Lee's thesis also thins if resistance to the buildout spreads past Texas and Georgia — two states where Democrats made gains and public pushback has grown.

Outside tech, Lee likes financials on a calmer rate market and industrials on lower energy prices. And one CNBC host flagged a side effect: crypto rallied as Democrats now push to pass legislation they opposed before the midterms.