Fundstrat's Tom Lee said in a Friday note that investors should buy tech stocks as valuations fall to levels not seen since the dot-com bust.
This year's stock market sell-off has seen the tech heavy index fall nearly 30% at its lows, and that's a bold call. The valuations of companies with fast growth but little profits have been affected by rising interest rates.
After the year-to-date decline, Lee now sees an attractive risk/reward profile in the tech stock market.
Many investors say they're waiting for the stock market to crash before they consider investing. He said that theNasdaq 100 is already there.
The Nasdaq's price-to-earnings ratio is lower now than it was at the depths of the dot-com bust, he said.
Today is cheaper than when the index was at its lowest point in 70 years. Markets crashed more than dot-com.
According to the note, this dynamic means tech stocks are likely to stage a considerable bounce before the rest of the market does.
This should show why the risk in FAANG is attractive. Lee pointed to Microsoft's stock trading higher after it gave an earnings warning on Thursday due to currency headwind.
Meta Platforms staged a big bounce on Thursday after it was announced that its COO, Sheryl Sandberg, was leaving the company.
On Friday, this "bad news is priced in" environment will be tested again after Musk said he wants to cut 10% of the company's work force. It would back up Lee's view that the bad news is already priced into the market.
According to the note, with Lee leaning bullish into the second half of the year, investors should consider buying tech stocks that are trading at depressed valuations. He pointed out that some mega-cap tech stocks are trading at discounts compared to the S&P 500.
According to Lee, "FAANG and Nasdaq are attractive on a valuation basis."
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