Tom Lee: Still a good risk-reward balance in equities, even in the stocks leading the rally

Tom Lee sees good risk-reward in equities despite rally: semis forward P/E only 22x vs historical 35x, AI adding 2% to GDP for 5 years driving ~6% S&P earnings growth without inflation. Still expects 15-20% drawdown later in 2025 from Fed chair change and petroleum shortage, but AI scarcity could push S&P to 7700+.

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Tom Lee: Still a good risk-reward balance in equities, even in the stocks leading the rally

ndx

AI is adding 2 percentage points to US GDP per year for the next five years, driving ~6% S&P earnings growth without inflation. This is a good combination for stocks.

5/2/2026 12:03:26 AM	short term up	7 days later	+6.04%	+6.04%
4/28/2026 12:59:26 AM	medium term up	20 days later	+6.00%	+6.00%
4/9/2026 12:21:52 AM	medium term up	20 days later	+9.30%	+9.30%
1/21/2026 11:11:31 PM	medium term cautious down	20 days later	-1.24%	+0.62%
11/14/2025 11:23:51 PM	medium term cautious up	21 days later	+3.34%	+1.67%
11/10/2025 10:53:49 PM	short term up	6 days later	-2.87%	-2.87%
10/6/2025 2:52:07 PM	medium term up	20 days later	+3.95%	+3.95%
9/15/2025 11:21:47 PM	medium term up	20 days later	+2.90%	+2.90%
8/22/2025 6:28:53 PM	short term up	8 days later	-0.83%	-0.83%
8/13/2025 3:51:26 PM	short term up	5 days later	-1.88%	-1.88%
8/4/2025 10:55:29 PM	short term sharp up	6 days later	+2.21%	+3.31%
8/4/2025 4:19:52 PM	short term up	6 days later	+2.21%	+2.21%

Show all 12 ndx results

wti

Tom Lee warns of an acute shortage of petroleum products developing every day the strait is closed, which will test the market later this year, implying upward price pressure.

Asks if the risk-reward spread in the market is narrowing despite Tom Lee's positive view.

Scott
Tom Lee

Stocks are rising for the right reasons: good earnings, scarcity of compute and supply chain (semis, energy). The semi index forward P/E is only 22x, well below historical highs of 35x, so risk-reward is still good.

AMD is the latest example of the scarcity theme.
Confirms that risk-reward is still balanced.

Scott
Tom Lee

There is still a lot of money on the sidelines, mostly retail investors chasing the move, explaining big moves in memory and semis.

Skepticism was high when the war started and reached its crescendo.
Questions if sentiment has become too euphoric, citing Ed Yardeni's 'Buzz Lightyear Theory' of AI going to infinity and beyond.

Yardeni is even more bullish than his original Roaring 2020s scenario.

Scott
Tom Lee

AI is adding 2 percentage points to US GDP per year for the next five years, driving ~6% S&P earnings growth without inflation. This is a good combination for stocks.

At the Milken Conference, this was a recurring theme. Balancing this is a rational concern about a coming shortage of petroleum products.
Recaps Tom Lee's three-phase market view: S&P rose to 7300, but he still expects a 15-20% drawdown later in the year.

The initial pullback during the war might have been that drawdown, but now the AI rally may carry through.

Scott
Tom Lee

Confirms he still expects a 15-20% drawdown later in 2025. Triggers: 1) market testing a new Fed chair with different inflation theories, 2) acute petroleum product shortage from the closed strait. But AI and US scarcity provision could still push the market to 7700 or higher by year-end.

7300 was an aspirational level; there is still fuel for a move higher from here. The overall rally could be one of the biggest in our lifetime.

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