Why Meta’s Muse may support the AI bull market

The equity bull market is more likely to end through a deterioration in the structural AI growth story than through the current rotation caused by higher oil prices and interest rates.

• Fiscal stimulus and expected monetary easing initially broadened leadership into industrials, materials and energy, whose year-to-date gains through August 31 were 16.69%, 13.56% and 44.20%, respectively.
• The Iran war pushed oil prices and Treasury yields higher, while the S&P 500 Equal Weight Index fell behind the S&P 500, with year-to-date gains of 11.79% versus 13.51% on September 23.
• The AI trade underwent successive corrections in hyperscalers, software and semiconductors; the North American Expanded Technology Software Index fell 21.25% peak-to-trough and the Philadelphia Stock Exchange Semiconductor Sector Index fell 28.61%.
• AI-related valuations became less demanding, with the S&P 500 Information Technology sector trading at 18.75 times forward earnings on August 31 versus a 10-year average of 22.22 times.
• Meta launched its Muse personal AI agent on September 8, and it became the top free app in the United States on Apple’s App Store and Google Play; Meta shares rose more than 11% in one session, adding nearly $200 billion in market value.
• The spread of agent workloads could benefit CPUs as well as GPUs: Advanced Micro Devices and Intel rose 34.56% and 40.50%, respectively, over the month to September 23.

Takeaway: Investors should distinguish the stalled cyclical broadening trade from the still-intact structural AI trade; oil and rates would need to peak for broader leadership to resume, while the bull market itself depends on continued AI investment, adoption and earnings conversion.