Spotify could benefit from Google's music AI feature, analyst says

Investing.com -- Spotify (NYSE: SPOT) stock showed volatility Wednesday after Google unveiled a new AI-powered music generation feature, though analysts suggest the development could actually benefit the streaming giant.

Google's introduction of Lyria 3, a generative music model, into its Gemini app allows users to create custom 30-second music tracks. The feature is rolling out in beta across eight languages, with higher usage limits for Google AI Plus, Pro, and Ultra subscribers.

KeyBanc analyst Justin Patterson views the development as "more positive than negative for Spotify," noting that the rapid growth in AI content creation could enhance engagement and discovery tools on Spotify's platform, while providing "optionality on margins and new products/pricing tiers."

Patterson doesn't consider Google's offering a competitive threat to Spotify, explaining that the streaming service's value proposition to artists stems from "broad reach and engagement, deep discovery tools with rich user data, and a proven monetization model."

The analyst believes Lyria 3 more directly competes with AI music creation tools like Suno and Udio, but suggests its 30-second track length limits adoption compared to the 2-3 minute tracks available on other platforms.

According to Patterson, the influx of AI-generated music—with Deezer reporting a sixfold increase in daily track uploads over the past year—could ultimately benefit Spotify as more content finds its way to the platform, potentially improving margins through long-tail content growth.

While AI headline risk may persist as companies like Anthropic, Meta, and OpenAI invest in audio models, Patterson argues that "the risk of new digital service provider competition is overstated."

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