Tom Lee Says AI Killed Software And Job Losses Are ‘Soon To Follow’

Fundstrat’s Tom Lee warned AI is destroying the $450 billion software sector and job losses will follow, predicting a dovish Fed under Kevin Warsh will cut rates as core CPI is forecasted to drop in Friday’s data release.

Lee told CNBC on Thursday that AI is “wreaking havoc across software” and job losses are “soon to follow.”

Software companies, which once “ate the world,” now face existential threat from AI displacement.

“If software shrinks, that’s deflation,” Lee said.

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The inflation picture shows AI is “actually disinflationary” as core CPI year-over-year is projected to drop to 2.52% in Friday’s January report—matching the 2017-2019 average and signaling a return to pre-COVID inflation.

Fed Chair Jerome Powell already subtracts 65,000 monthly from jobs reports knowing revisions are negative.

Lee argued the stock market won’t care about labor reports because investors wonder “how much of these are gonna be lost in the future due to AI.”

Markets initially treated Kevin Warsh’s Fed nomination as hawkish, but Lee called that reaction wrong.

“Trump wouldn’t appoint a hawk,” he said. Warsh wants lower rates but a smaller balance sheet.

With jobs shrinking and AI disrupting sectors, Lee expects a dovish Fed.

Fed funds rates sat at 1.5%-2.0% during the 2017-2019 period, suggesting “a lot of room to cut rates” from current levels.

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AI’s disruption is triggering a major market shift.

Last year, investors bet on the “Magnificent 7” tech giants—Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Tesla (NASDAQ:TSLA), and Nvidia (NASDAQ:NVDA).

Lee calls them “the armies” leading the AI revolution.

Now the money is moving.

Investors are rotating into the companies supplying AI’s infrastructure: energy providers, industrial manufacturers, power generators, and chip makers.

These “bullet makers” are capturing the billions in capital expenditures that AI buildout requires, while software companies—the original AI disruptors—face becoming AI’s biggest victims.

Lee predicts this rotation will trigger a 10-20% U.S. market decline as money flows out of the Magnificent 7 and into industrials and financials.

But here’s the twist: this shift favors international markets.

The Mag 7 dominates 55% of U.S. indices, creating heavy tech concentration.

Foreign markets, however, are weighted toward industrials, materials, and diverse sectors—exactly where capital is now headed.

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Lee’s bullish January calls for Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) didn’t materialize. Crypto suffered a bigger deleveraging shock in October than FTX’s November 2022 collapse.

Two factors derailed recovery. First, the October 10 tariff tweet triggered liquidations.

Just as crypto began recovering—recoveries typically take six to eight weeks and are V-shaped—the Greenland threat triggered another cascade.

Second, FOMO shifted to gold. Crypto investors face “egg on their face” staying in crypto while stocks and gold performed well. Gold’s January surge amplified the psychology.

Despite failures, Lee said crypto “looks really like it’s bottoming because the fundamental story is quite positive.”

The mood at Consensus Hong Kong was “horrible” as investors questioned staying in crypto versus buying gold.

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This article Tom Lee Says AI Killed Software And Job Losses Are ‘Soon To Follow’ originally appeared on Benzinga.com