Hey Income Traders,
I spent most of this year griping about one company's AI tab. The CEO kept writing bigger checks, and I couldn't find the return anywhere.
Then an app launched on September 8. Ten days later it sat on top of the App Store, ahead of ChatGPT, and I changed my mind on the stock.
That same app points a finger at a travel giant that beat earnings in August and looks healthy on paper.
I love one of these names this week. I'd leave the other.
One to Love: The Waiting Room Got a Door
Until a few weeks ago, I wanted nothing to do with Meta Platforms (META). Zuckerberg spent on AI like a drunken sailor, and nobody could tell me where the money would come back from.
Google, Microsoft and Amazon fund their moonshots with cloud businesses that throw off cash. Meta had no cloud. In the second quarter it poured $31 billion into capital spending and kept just $784 million in free cash flow, down 91 percent from a year earlier, and the stock dropped roughly 10 percent after the report.
Then Muse showed up. Meta spent two decades building the world's biggest waiting room, and Muse just put a door in it.
Muse works as an AI agent (software that carries out tasks for you instead of just answering questions). It sends emails, books travel, fills out forms, makes purchases and finds you a dog sitter. Think about what people will hand to a bot: cut my expenses, find me a vacation, build me a project and write the ads.
Whoever owns the agent doing that work owns the next front door to commerce. Meta already has 3.6 billion people hitting its apps every day.
The early numbers back me up.
On Friday, Chief AI Officer Alexandr Wang posted that Muse had climbed to No. 1 in the App Store, ahead of ChatGPT at second, Gemini at eighth and Claude at 13th. He also says Muse pulls more daily U.S. downloads than Threads, WhatsApp and Facebook combined.
And Muse doesn't run a single ad. It comes with a free tier plus $20 and $100 monthly plans, and Wang says Meta may take a cut of what the agent buys for you. That stacks new revenue lines on an ad business that grew 27% last quarter.
Wall Street noticed.
Morgan Stanley called Muse the largest unpriced call option on the stock (a bet the market hasn't paid for yet). JPMorgan upgraded Meta to Overweight and lifted its target from $640 to $820, and the shares have climbed about 10 percent since launch day.
Trust will decide this one. Oppenheimer surveyed 1,500 consumers around the launch, and just eight percent said they'd hand Meta their passwords, against 30 percent for Google. Wang's answer: Muse runs in its own isolated environment and never sees your real passwords or card numbers. If that design holds up under attack, the weakness turns into a moat.
I'll give the bears their due. Wedbush stayed Neutral with a $650 target and called near-term monetization somewhat limited, because consumers still have to learn what an agent can do. Meta also still plans to spend $130 billion to $145 billion on capital projects this year.
But the spending finally has a destination. Meta Connect on September 23 brings the next catalyst.
One to Leave: The $2.4 Billion Habit
Booking Holdings (BKNG) sits on the other side of the Muse trade. If the agent becomes the new door, the old doors lose value.
Booking built its empire by paying for traffic. Someone searches "Cancun hotel," clicks through and lands on a site engineered to nudge them into a reservation. Last quarter Booking spent almost $2.4 billion on marketing, about a third of its revenue.
That bill grew 11% while gross bookings grew nine percent, and management blamed changes in traffic mix. Traffic already costs Booking more each quarter, and the agents have barely started.
When you tell your agent to find you a vacation, it skips the banner ad and the loyalty upsell. It compares price, availability and reviews, then books. Muse already does this with flights: it books straight through a connection to about 500 airlines, and no travel site touches the sale.
I'll play fair on this one too. Booking beat every number in August, and management says AI chatbots send it less than one percent of its room nights. For hotels, Muse still opens a browser and shops the same travel sites you do, so Booking still collects on those stays.
So this call runs ahead of the numbers, and I know it. Mizuho flagged pressure on the online travel agencies the day after Muse launched, and the stock trades near $168, closer to its 52-week low of $150 than its high of $225.
Friday morning I wrote about the swarm: websites built for human clicks can't handle bot volume, and businesses whose margins depend on human browsing carry the most exposure. When your bot books the vacation, nobody sees the "only 2 rooms left" banner.
I'll look at both names for Turbo Income trades this week.
Here for a good time AND a long time,
Hans