Meta's Muse reignites AI disruption fears, sending Schwab lower and Robinhood higher

Schwab, the 55-year-old investing giant, touched its lowest level since early July and is now down more than 8% since Meta announced Muse. Robinhood, an icon of the post-Covid trading boom among young investors, moved higher. In May, Robinhood launched AI agents that can now trade and manage portfolios on behalf of users.

The selling spread across wealth management and brokerage stocks. LPL Financial Holdings dropped 7% Tuesday, Raymond James Financial shed 3.5%, and Interactive Brokers slipped 1%. The State Street Financial Select Sector SPDR ETF lost 2% and is now down 6% from highs made earlier this month. Higher interest rates may not be helping.

It was not the first time an AI product has jostled the group. In February, the same group of stocks dropped when tech platform Altruist said its platform Hazel can create tax-planning strategies for individuals and advisors. Schwab stock recovered some in the months after; LPL has not.

"Schwab's an interesting animal," said Jimmy Lee, founder and CEO of The Wealth Consulting Group, a Las Vegas-based advisor that oversees $8 billion in assets. "To us in the advisor space they're kind of neutral and figuring out how best to protect their market share. I don't think Meta brings a lot of competition from the custodian perspective because it's not like Altruist's platform, but there is a lot of disruption that's going to happen among financial middle-men that charge fees for billing, reporting, trading, etc."

Meta's AI assistant says it won't trade for users or give financial advice, but when queried with how it might mimic the work of a financial advisor or broker, it lists abilities including tracking investments and progress towards goals, as well as analyzing how portfolio holdings fit together.

Last week, Schwab Advisor Services, the company's platform for registered investment advisors, announced it is working with Anthropic to create Claude for Financial Advisors. In May, the company launched an AI tool that includes tailored analysis from the company's research arm. Representatives from Schwab did not respond to a request for comment. Robinhood representatives declined to add to this story.

Robinhood's bounce on Tuesday brings its stock to a 10% rally on the year after dropping more than 40% in the first three months. The retail-focused brokerage, which also offers digital banking and advisory services, is up 1,200% the past three years. Schwab stock is up 83%, and the XLF is up 65%.

"AI and tokenization threaten to dismantle the frictions that legacy financial intermediaries have historically monetized," Piper Sandler analyst Patrick Moley wrote in a note in April. "Schwab's reliance on low-yielding sweep cash puts it squarely in the crosshairs."

The options market showed contrasting expectations. Schwab options volume was more than five times the average, with nearly twice as many puts bought versus calls, Cboe LiveVol data show. The most popular contract to buy was the 90-strike put expiring mid-January, a bet the stock drops another 13% over the next three months. There was one big counter-trade sale of the Oct. 16 95-strike puts.

In Robinhood options, sentiment was the opposite. Traders bought twice as many calls as puts, with more than 80% of the $95 million in premium traded tied to calls. The most heavily traded contract was the 125-strike call expiring on Friday.

"Gen Z and millennials gravitate towards platforms like Robinhood and Public which is why those platforms ship products so quickly," Gav Blaxburg, founder of Wolf Financial, a popular online trader enclave, said in a call. "Robinhood has built enough trust rebuilding its brand since Gamestop and they're allowing agents to trade literally everything."