AI music is here to stay — and it could offer a lifeline to struggling record companies

• A surprising portion of millennials and Gen Zers listen to hours of AI music a week.
• It's another hurdle for a music-recording industry that's already had to adjust to the streaming era.
• But while AI music may seem disruptive, many Wall Street analysts view it as a lifeline for record companies.

The rise of AI music has set off panic within the music industry. I feel it every day on my social media feeds.

The bands I follow post about it incredulously, scoffing at the idea that AI could replicate their organic magic. The music writers I follow are even more dismissive. They refuse to engage with it entirely, essentially closing their eyes and willing it to go away.

Well, outside of my middle-aged indie-rock bubble, AI music is not going away. It's actually taking over. Millennial and Gen Z listeners are embracing it and making it part of their routine.

A recent survey from Morgan Stanley found that more than half of listeners between 18 and 44 listened to an average of 2 1/2 to 3 hours of AI music a week. That's a substantial chunk of time — about the length of a Paul Thomas Anderson movie.

From a markets and investing perspective, the question is what the rapid rise of AI music will mean for publicly traded record labels and major streaming platforms. The labels might seem particularly exposed, since they've long made their living by recruiting and promoting human artists.

But actually, Wall Street is almost unanimously bullish on stocks in the industry — like Warner and Universal — largely because their artist libraries are still immensely valuable. Lucrative licensing deals are already being inked, and analysts expect more to come. After all, it's tough to get AI music to sound just like Justin Bieber when you don't have a catalog to train the model on.

Record-label stocks also look attractive right now because they've fallen so much throughout the streaming era. Both Warner and Universal are down more than 30% from highs. Any upside driven by AI music — at least in the near term — will be a clawback of value erased by disruption in recent years.

And how can we forget Spotify, the straw that stirs the streaming drink? Its stock has also fallen more than 30% from highs reached last year. But it just crushed subscriber-addition forecasts, and Wall Street is overwhelmingly convinced its existing scale and dominance will ensure the explosion of AI music runs through its platform.

The bullish theses on the trio of stocks faced a stiff challenge earlier this week, when Google's Gemini released a tool that will let users make 30-second AI music tracks.

You know the drill at this point: When a new AI tool is introduced for a specific task, it kickstarts an indiscriminate double-digit sell-off in the sector in question. It recently happened four times in a single week.

Well, that didn't happen with Warner, Universal, or Spotify. They all hung in there admirably. Warner and Universal are basically flat in the two days since, while Spotify has rallied 5%.

Rather than rendering them extinct, AI music is expected to offer record labels — and investors in them — a much-needed lifeline. For the sake of their stock prices, these companies need to figure out an operating model that can work alongside the AI-music revolution. For now, Wall Street is hopeful.