AI Stocks Have Taken A Beating, But Gene Munster Says The Biggest AI Boom Is Still Ahead

Munster argued that while AI infrastructure growth could slow in the near term, the long-term opportunity remains largely unchanged.

• Munster drew parallels between the latest AI sell-off and the market turbulence in early 2025, when Chinese AI startup DeepSeek rattled investors.
• However, he believes that this time, political uncertainty and the possibility of data center moratoriums could have a more tangible impact.
• Munster acknowledged that the pace of AI development and investment could flatten, but argued that markets have already priced in much of that slowdown.

AI stocks have come under renewed pressure amid concerns that political uncertainty could slow data center construction and derail the industry's massive infrastructure spending plans. However, Deepwater Asset Management's Gene Munster believes investors may be overlooking the bigger picture.

In a recent note, Munster argued that while AI infrastructure growth could slow in the near term, the long-term opportunity remains largely unchanged. He views the recent market pullback as a buying opportunity, rather than a fundamental shift in the AI investment story.

AI Adoption Is Still Below 1%, Munster Says, Even as Data Center Fears Mount

Munster drew parallels between the latest AI sell-off and the market turbulence in early 2025, when Chinese AI startup DeepSeek rattled investors and raised questions about whether massive AI capital expenditures would generate sufficient returns.

However, he believes that this time, political uncertainty and the possibility of data center moratoriums could have a more tangible impact, particularly on infrastructure growth in 2027 and 2028. Munster acknowledged that the pace of AI development and investment could flatten, but argued that markets have already priced in much of that slowdown.

He pointed out that AI adoption remains remarkably low, at less than 1% across the world's digital economy and substantially below 1% in physical AI.

"With that much runway still ahead, any data centers delayed by the current political environment will ultimately still need to be built to support the remaining adoption," Munster wrote.

He also highlighted the strategic importance of infrastructure development, arguing that the U.S. needs to maintain its competitive position against China. In his view, market forces and government support will eventually pave the way for renewed investment in data centers and AI applications.

AI Agents Could Go From 20 Million Users To Billions, Says Munster

Beyond infrastructure, Munster sees enormous opportunities in personal AI agents, enterprise software and physical AI.

Personal AI agents, which can automate routine tasks and act as digital assistants, currently have an estimated 20 million daily users, according to Munster. That compares with approximately 3.7 billion daily users across Meta Platforms Inc.'s (META) platforms and more than three billion daily Google searches.

He believes these tools could eventually reach billions of users, fundamentally changing how people interact with technology. Recent commentary from Meta CEO Mark Zuckerberg, Tesla Inc. (TSLA) CEO Elon Musk and Alphabet Inc. (GOOG, GOOGL) CEO Sundar Pichai has reinforced his conviction in the category.

Munster added that enterprise AI represents another significant growth opportunity. He estimated that companies currently spend around $25 per employee per month on AI, compared with nearly $700 on traditional enterprise software. Eventually, Munster expects AI spending to replace and expand upon conventional software budgets.

The investor believes that physical AI could provide yet another growth engine. Despite roughly 100% year-over-year growth in autonomous vehicles and robotaxis, adoption remains below 1%. Munster sees opportunities extending into autonomous robotics across healthcare, logistics and other industries.

Ultimately, Munster believes the recent sell-off presents an opportunity to gain exposure to the broader AI trade, although he cautioned that not every AI-related company will emerge as a winner.

During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, gained 0.17%; the Invesco QQQ Trust ETF (QQQ) rose 0.21%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) edged up by 0.06%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the ‘bearish’ territory at the time of writing.

The Global X Artificial Intelligence & Technology ETF (AIQ) rose 1.32% on Friday, while the iShares U.S. Technology ETF (IYW) gained 1.31%.

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