Analysts: AI chip stocks remain top pick as Meta's Muse hype may be fleeting

Wall Street professionals suggest that while Meta Platforms Inc.'s Muse appears to have emerged as the latest popular AI agent, chip manufacturers remain the best way for equity investors to participate in the AI agent race.

AI agents are capable of handling multi-step tasks such as booking reservations or financial management. Their rising popularity has introduced market volatility, as investors weigh which products may become the preferred choice for businesses and consumers, while also assessing their potential to disrupt traditional business models.

However, these new agents require significantly more computing power than the previous generation of chatbot-style AI tools. This means demand for stocks of chipmakers and other companies in the AI infrastructure sector is expected to persist. Since the launch of ChatGPT nearly four years ago, these stocks have been the preferred vehicle for investing in emerging technologies.

Paisley Nardini, Director of Investment Strategy at Tema ETFs, which manages $3.8 billion in assets and holds Meta stock, commented: "Leadership is like a hot potato. I've already heard people joking that in a few weeks we'll forget about Muse." Rick Lear, Chief Investment Officer at Lear Investment Management, added: "We don't want to bet on which company will ultimately have the best agent. Instead, we want to own the foundation of agents overall. No matter which company leads, these stocks will benefit." His portfolio includes Nvidia Corp., Micron Technology Inc., and utility company Williams Cos Inc.

AI infrastructure stocks have dominated the market this year. Among the top ten gainers in the S&P 500, nine are related to this theme. The Philadelphia Semiconductor Index has surged 84%, driven by AI-related stocks such as Micron, Marvell Technology Inc., Intel Corp., and Advanced Micro Devices Inc.

Meta launched its personal AI assistant Muse last month, which saw massive download numbers and received widespread acclaim, pushing its stock up 27% in September—its best monthly performance in nearly four years. OpenAI subsequently launched Dots, joining the competition alongside Alphabet Inc.'s Gemini Spark and SpaceXAI's Grok Bot.

The popularity of Muse demonstrates how quickly AI sentiment can shift, with momentum often moving toward the newest or most popular product. Meta struggled in the first half of the year due to massive AI spending, while Alphabet, which began the year as an AI leader, has recently come under scrutiny.

This volatility has led many investors to view AI infrastructure stocks as more reliable than companies competing in the agent race. Nardini said: "Betting on Meta, Alphabet, Apple, or whoever will be the biggest winner in AI agents is like a coin toss right now. Infrastructure is a more direct way to benefit, because agent demand will drive demand for these products over the long term."

This view is becoming consensus, with analysts raising earnings expectations for AI infrastructure. According to Bloomberg Intelligence data, net profit for the sector is expected to grow 63% by 2027, with revenue growth of 54%. In late July, the forecast was for profit growth of less than 48% and revenue growth of 32%. Expectations for 2028 are also being revised upward, indicating that Wall Street expects the trend to continue for several years.

Citigroup analyst Atif Malik estimates that the total addressable market for CPU chips will grow at a compound annual growth rate of 60% by 2030. Nardini concluded: "This is why the infrastructure approach makes sense. Meta won't hold the torch forever. Leadership changes in six months. What doesn't change is the demand for chips."

Source: Bloomberg