Can Spotify strike the right chord with AI?

Spotify has been playing a tricky duet with artificial intelligence lately, and shares have been singing the blues.

AI-generated songs, and even entire bands, are spreading faster on the platform than a Taylor Swift hook, and as anyone fooled by Sienna Rose can attest, spotting fakes isn’t easy. That has struck a sour note with real-life artists, who argue that these robo-musicians are drowning out their own acts. On the receiving end, listeners may say they don't like AI music, but their streaming habits sing a different tune. Last but not least, many Wall Street analysts dig what they’re hearing and hope AI adds some heavy beats (and bucks) to the company’s bottom line.

So where does that leave Spotify’s stock? Although it’s down 1.08% today and has plunged 26.29% over the last six months, the pros appear to be upbeat about the company’s long-term prospects. As Deutsche Bank analysts recently noted, “GenAI is likely to impact the music industry in two ways, in our view: Help create new content or create derivative work. We view these initiatives as more complementary to Spotify than as a threat.”

Rock on, AI

Still, concerns remain about how this harmonious collaboration will pan out. As Bank of America warned, “The concern now is [AI] technologies enable artists, or even consumers, to generate and distribute music without traditional intermediaries and become potential competitors.” In other words, AI music purveyors could decide to do an end-run around the green-logoed giant and send their music directly to consumers.

Meanwhile, Spotify is doing its best to stay firmly in the AI race by riffing on new ways to weave this technology into its product. Its AI DJ “X,” for instance, has already gained a loyal following. Next up? “Prompted playlists,” where listeners can type in conversational requests to fine-tune which songs get served up as suggestions.

UBS has applauded these innovations, reporting in its January research that they “expect the company to expand its premium service with additional features and AI tools/products, driving higher conversion to paid subscription and up-tiering overtime.”

Bottom line: We don’t see the Spotify/AI band breaking up any time soon, which should be music to investors’ ears.—JD