Markets and Economy Why Meta’s Muse may support the AI bull market

While investors have been watching oil prices and interest rates climb,¹ the most important market development of the past few weeks may have come from Meta.² The early success of its new personal AI agent, Muse, is a reminder that the cyclical backdrop may face the headwinds of higher oil prices and rising interest rates, but the structural growth story underpinning this bull market remained very much intact.

That distinction matters.

Investors entered the year with two powerful forces working in their favor. There was a long-term structural growth story centered on AI. But within that story, there was also a cyclical upswing taking shape.³

Stalled cyclical market story

The world was expanding, supported in part by fiscal stimulus and the prospect of monetary easing. The result was a broadening of market leadership beyond the largest technology companies and into the traditionally more cyclical parts of the market, including the industrial, materials, and energy sectors.⁴ Remarkably, that broadening continued through the early months of the war in Iran, as investors largely expected the conflict to reach a quick conclusion.⁵

That expectation proved too optimistic.

As the war has persisted and expanded, oil prices have moved sharply higher, and interest rates have risen alongside them.⁶ Higher rates, tighter monetary policy, and a flatter yield curve are hardly ideal for the broadening trade.⁷ Not surprisingly, that rotation has stalled.⁸

But something else happened beneath the surface.

The structural AI trade had spent much of the year experiencing its own rolling correction. The hyperscalers were hit first.⁹ Then came the software stocks.¹⁰ Finally, the selloff reached semiconductor and memory stocks.¹¹ By the time investors turned their attention toward oil, inflation, and interest rates, something unusual had happened. Many of the companies at the center of the AI story had become surprisingly attractively valued relative to their potential earnings power.¹²

Meta’s successful launch of Muse

Which brings us to what may be the most important market story of the past couple of weeks.

Meta launched Muse, a personal AI agent designed to do more than answer questions, on September 8. It can work on a user's behalf across the web. Once given a goal, it can carry out a series of tasks with relatively little additional instruction, while leaving important final decisions to the user.

The response has been striking. Muse surpassed ChatGPT to become the top free app in the US on Apple's App Store and Google Play.¹³ That matters because Meta had become something of a poster child for investor concerns about AI spending. The company has been investing enormous sums in AI, while some investors questioned what it had to show for it. Its stock had fallen into an ugly downtrend.¹⁴ Muse suddenly provides a tangible answer. Meta shares surged more than 11% in one session, adding nearly $200 billion in market value as investors began contemplating what successful consumer AI adoption could mean for future growth.¹⁵

The enthusiasm has also spread to central processing unit (CPU) companies. Training large AI models has been dominated by graphics processing units (GPUs). AI agents, however, must continuously perform actions, process sequential instructions, and interact with applications. Those workloads can create greater opportunities for CPUs alongside GPUs, potentially broadening the beneficiaries of rising AI usage across the computing ecosystem. CPU stocks, such as Advanced Micro Devices and Intel, have surged 34.56% and 40.50% over the past month.¹⁶

Bull market and structural AI story

So, what should investors be focused on?

Oil matters. Interest rates matter. The Strait of Hormuz matters. Those developments are affecting the cyclical backdrop today, and they help explain why the broadening trade has stalled.

But they aren’t necessarily what determines whether the bull market in stocks ultimately survives, in my view, but perhaps whether there’s another rotation within that bull market. For the so-called broadening trade to re-engage, I believe rates and oil prices would need to peak.

This bull market may likely end with a meaningful deterioration in the structural AI story, whether through weakening investment, disappointing adoption, or a failure of that investment to translate into earnings. In a month when much of the news has been negative, the success of Meta’s Muse may be the clearest evidence yet to me that the payoff from this extraordinary investment cycle may potentially be only beginning.