How Meta's Muse Saved the Market-While Savaging These Stocks -- Barrons.com

By Alex Rosenberg

If AI wins, who loses?

The question is far from academic. This past week saw the rapid rollout-and uptake-of Meta Platforms' personal artificial-intelligence agent, Muse, and the release was great news for Meta, which has gained 13%; for semiconductors, which have risen 6%; and the tech sector, which is up 3%. It was even enough to help the market weather the 10-year Treasury yield's breach of 5%, a level that was supposed to tank stocks.

Instead, the S&P 500 index was on track to close up 0.9% for the week, while the Nasdaq Composite was rising 1.8%. Only the tech-lite Dow Jones Industrial Average looked to finish the week lower, if just by 0.3%.

Yet Meta Muse also has a dark side. The good news is that its apparent success was another sign that the trillions of dollars companies are spending on AI may eventually yield a return. But the spending numbers are so big that even if AI delivers the entirety of the 3% growth in U.S. gross domestic product expected in 2027, we're still talking about returns of only $1 trillion or so, which may not cut it. The rest of the money will have to come from somewhere else.

One prevailing idea is that AI will take over a huge swath of jobs. But with labor growth remaining strong, that doesn't seem to be playing out. Another, more probable idea is that AI will cause dramatic shifts in the economy, taking business from certain sets of companies while delivering it to others who are better placed to leverage AI.

"Your margin is my opportunity," said Jeff Bezos in 2012, and AI will be relentless about finding these margins and finding a way to grind them down-which is good news for consumers, and even better for fast-moving businesses, but terrible for incumbents who haven't had to work hard to retain customers.

We got a real taste of that this past week, particularly on Tuesday. Stocks like Planet Fitness and the New York Times Co. tumbled, as Muse will make it easy to cancel subscriptions. Charles Schwab and LPL Financial Holdings, which keep the cash of inattentive clients in low-paying accounts, also fell; Muse could move that money to higher-yielding places. Tripadvisor and Booking Holdings are likewise under pressure, since Muse can end-run the booking sites and simply lock in the best flights and hotels at the lowest prices.

Some of these moves may turn out to have been extreme, but market mechanics will determine the direction in the short term. Due in part to the rise of multimanager hedge funds, or "pod shops," an increasingly large share of the hedge fund industry needs to find stocks to sell short against the stocks they own, in order to avoid taking on too much exposure to the broad market.

Long chips/short software served that purpose for a while, but recently, semiconductors and software have been moving higher together, blowing up that trade. If "consumer inertia" stocks are increasingly used as the other side of the AI trade, then further declines could take on the force of a self-fulfilling prophecy.

Despite it all, the S&P 500 remains stuck in its range-but maybe not for long. Jane Gibbons, U.S. large-cap strategist at Jefferies, expects to see a breakout to the upside. The market has had to weather a Federal Reserve interest-rate hike, with more expected, and the Iran war, but the potential for strong earnings has prevented it from tumbling, she says.

But as the calendar flips from September, historically the weakest month for markets, will end, the start of third-quarter earnings will begin. Gibbons' year-end S&P 500 target of 8000-which would represent a 3.8% gain from current levels-is underpinned by continued earnings growth. Looking into 2027, she's expecting earnings to grow by 21% even as the index's price/earnings multiple slides to 20, for a 2027 year-end target of 9000. Importantly, she expects earnings growth to broaden out, as the growth gap between AI-centric companies and the rest of the S&P 500 compresses.

That would be a welcome change. Because right now, the question isn't who will pick up the slack if and when the AI heavyweights slow down-it's whose lunch the tech will eat next.

Write to Alex Rosenberg at alex.rosenberg@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 25, 2026 11:32 ET (15:32 GMT)