Fundstrat co-founder and Bitmine chairman Tom Lee, a former J.P. Morgan chief equity strategist, says the selloff in AI-related stocks has reached its bottom, arguing that demand remains constrained by supply and that the cryptocurrency market's relatively limited response to a multibillion-dollar exchange hack suggests investors have already done much of their selling.

Strong AI demand has not insulated chipmakers from earnings concerns, however, and outflows from Bitcoin funds show investors are still pulling money out.

"I think we're at the bottom," Lee said during an interview on CNBC's Squawk Box.

His call follows a decline that has spread beyond individual AI companies into the wider market: large technology stocks also sit inside the funds many people rely on to invest for retirement. (Disclosure: Tom Lee is one of several investors in Dastan, Decrypt's parent company.)

Lee acknowledged how difficult it is to identify the point where prices stop falling. "Bottoms are dangerous because you don't know how much more downside you have at the bottom," he said.

Tight supply, not overcapacity

Lee's case rests on a distinction between an industry struggling to expand fast enough and one that has built more capacity than customers need. Across the tech sector, shortages of chips, power, and data center capacity have emerged as key bottlenecks to AI expansion in recent years, giving Lee's supply-versus-overcapacity framing relevance far beyond a single company's earnings.

"The market for AI is still very tight. It's not an overcapacity market," Lee said. Constraints on spending, including political opposition, are slowing growth without signaling that the boom has peaked, he argued.

Strong demand still leaves earnings problems

That distinction matters for the companies building the infrastructure behind AI, including data centers — the facilities that house the computers running AI systems. A shortage can leave customers waiting for capacity, but it can also prevent suppliers from turning orders into revenue.

Intel offered a particularly sharp example on Friday, when its shares plunged nearly 30% to $65.76 after a disappointing fourth-quarter forecast. The chipmaker's data center and AI revenue had risen 78% from a year earlier to $7.3 billion, yet manufacturing constraints limited its ability to meet demand.

Intel projected quarterly revenue of $15 billion to $16 billion, with the midpoint about $1.6 billion below analysts' expectations. Its weaker PC business added to the pressure, showing why healthy AI demand can coexist with a falling share price. Because Intel is one of the major suppliers of processors for data centers, its outlook also doubles as a hard-number reading on AI infrastructure demand — one investors can revisit when the company reports fourth-quarter results.

Crypto as a signal for risk

Lee's second argument looks outside the stock market, to how digital assets have handled negative news. He pointed to crypto's relatively limited response to the Binance security breach, which the exchange initially estimated had an impact of about $6.3 billion.

"If crypto is a leading indicator for risk, you've already seen people sort of washed out," Lee said. In his reading, a market that absorbs bad news without a much larger decline may have fewer sellers left to push prices down.

Bitcoin did fall about 4% to roughly $76,400 on Friday, and more than $1.3 billion in positions funded with borrowed money were forcibly closed. U.S. spot Bitcoin exchange-traded funds, which hold Bitcoin and trade like stocks, also shed $643.2 million that day — their largest daily outflow of October. Daily flow reports for those funds offer traders a running gauge of whether that selling pressure is easing.

That said, a 4% drop is considered a relatively normal occurrence among crypto traders and can happen even during bull runs.

Binance, among the world's largest crypto exchanges by trading volume, said on Friday that about $3 billion of the affected assets had been frozen, and the exchange pledged to cover losses using its emergency reserve and company funds. How much of the frozen sum is ultimately recovered will shape the breach's final cost.

This article was originally published by Decrypt.