AI Music is Catching On & Businesses Have a Penny Problem

0:00When it comes to what your family eats and drinks, you know your choices matter. You're the expert because you know what fits your life. And getting it right starts with good information. That's why America's beverage companies are sharing more information about our ingredients at GoodToKnowFacts.org. No spin, no judgments, just the facts straight from the experts for more than 140 beverage ingredients. Visit GoodToKnowFacts.org. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, chaos at the checkout counter as retailers run out of pennies. Then Apple and Amazon completed the big tech earnings slate.

0:43Who popped and who flopped? It's Friday, October 31st. Let's ride.

0:53Happy Friday and happy Halloween. It looks like this town is big enough for the two of us because I am dressed as Space Ranger Buzz Lightyear and And Toby is... There's a snake in my boot. You guessed it, Woody. There's been an intergalactic emergency that I've been called upon to address, but somehow crash-landed in a podcast studio with a cowboy sitting next to me and absolutely no signs of intelligent life anywhere. You are a toy, Neil. T-O-Y toy. I will say there was some debate in the office yesterday as to who was going to be Woody and who was going to be Buzz. So I am curious what you all think.

1:27Did we end up in the right costumes? Is Neil giving delusional intergalactic space ranger with no sense of reality? And am I giving insecure cowboy nervous about losing Andy's love? Let us know in the comments. We'll post a picture on our Instagram as well so you can weigh in and check out the fits there. And now a word from our sponsor, Disney Campaign Manager. Are your marketing campaigns reaching a tailored audience or are they just reaching an audience whose eyes glaze over because your ad has nothing to do with them? Or a secret third option. Whichever the case, Disney Campaign Manager delivers advanced, multi-layered audience reach, leveraging proprietary Disney Select segments to reach fans and markets by geography device, content genres, and more.

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2:46Well, one day after Google raked in$100 billion in one quarter, Apple joined the triple-digit Billions Club, bringing in$103 billion in its fiscal Q4, about 8 % higher than a year ago. The iPhone put the team on its back again, showing sales growth for a second straight quarter after years of stagnation. Sales rose 6%, but Apple is projecting an even rosier 10 % to 12 % growth in the next quarter, nearly double what Wall Street was expecting, as people are upgrading to the iPhone 17 model in droves. But this is not an early career LeBron on the Cav situation. The iPhone does have help these days, mostly from the services division, which has been growing like a weed.

3:25Apple's services division, which includes App Store commissions, subscriptions, and the$20 billion annual payment for Google to remain Safari's default search engine, surpassed$100 billion in annual revenue for the first time ever. But things weren't all hunky-dory for investors, with sales in China flashing warning signs. Revenue in the region fell by half a billion dollars compared to last year. Neil, definitely a solid quarter with an assist from the iPhone 17 release. Kind of a weird stock reaction, though. The stock initially fell 4 % in after-hours trading as investors digested the China performance before quickly reversing and jumping 3 % into the green because who knows why, honestly.

4:04Well, I think it's because Tim Cook did an interview and he said demand for the iPhone 17 family was off the charts. And we knew this coming into this earnings report. There was other reports that had come out previously to this from third parties that said that people were loving the iPhone 17. They were absolutely gobbling it up. Consumer Intelligence Research Partners, which is an analyst firm, said that there is great interest in the Pro and Pro Max models, while the new iPhone 17 Air model showed virtually no sign of traction. So I guess people don't care about this Air, this very lightweight device that Apple unveiled.

4:38But the Pro and Pro Max models are selling like hotcakes. And it's a start of a new, what they call a super cycle for people upgrading their iPhones, which they had previously done in the early days of COVID in 2020 and 2021. They're looking at their phones, little crack screen there, little slow moving apps over there. And they're like, OK, it's time to upgrade to a new iPhone, whether it has whiz-bang AI features or not. Because clearly there was no huge AI pull here because Apple is still far behind in the AI race. It just didn't seem to matter to consumers. They kind of said the magic letters a few times.

5:14They say they expect to increase their CapEx and AI investment, which is literally what every single big tech firm just said. Apple is doing it on a much smaller scale than the multi-billion dollars that their counterparts are outlaying. But Apple has also said, Tim Cook said, that they're open to pursuing M &A. That's been something floating around the rumor mill for so long now. Is Apple going to make a big splash and buy up one of these hot AI startups to try to get their neck in front of competitors in the AI race? And Tim Cook didn't shut the door on that, say, hey, if a good deal arises, we are absolutely interested in that.

5:50And then the final thing we should talk about with Apple is tariffs. Cook said that they expect a$1.4 billion tariff hit. That is actually taking into account the decrease that just happened from the Xi and Trump meeting, 20 % tariff down to 10%. So it's still$1.4 billion, but kind of music to investors' ears in a way because you are seeing tariffs start to head in a lower direction when it comes to China. Last up on the big tech earnings slate, we have a laggard of the Magnificent Seven so far this year, Amazon. Entering today, it had year-to-date gains of about 5 % with shares missing out on the AI frenzy that has buoyed its counterparts.

6:29But it channeled its inner MJ and took that personally, posting a blowout quarter to stick it to all the haters. Remember when Apple and Google crossed a$100 billion revenue threshold? Amazon saw sales for the period rise 13 % to$180 billion. Most of its profit, though, came not from your toilet paper orders, but from its AWS division, which saw revenue rise 20 % in the period as it looks to keep its nose in front of fast-growing rivals Alphabet and Microsoft. CEO Andy Jassy said AWS was growing at a pace we haven't seen since 2022. He also called out particularly strong demand for its AI offerings.

7:06Despite running the world's largest cloud business by revenue, Amazon has been largely shunned by investors who see it as losing ground to those nipping at its heels. But Jassy teased some unannounced deals worth more than all the new deals in its third quarter. Neil, the stock jumped 13 % in after-hours trading. Looks like it's got some pep back in its step. Amazon is humming on all cylinders. People are continuing to spend on its marketplace. So strong consumer spending means more people shopping on Amazon. So much of its sales come from that e-commerce platform. And that is doing really well.

7:39It's building a lot of new smaller warehouses closer to where people live because its bottom line is that when we put warehouses closer to where people live and they get faster delivery, that just causes them to shop more. So if you look at something and it says it's going to be delivered later today or tomorrow, you are much more likely to buy that than if it's going to come to your doorstep in two or three days. So that is what Amazon is investing in in the e-commerce front. But the headline here, the reason it jumped 13%, the stock jumped 13%, is the cloud, the strongest growth in almost three years.

8:11And a lot of investors had thought that AWS was so big that it had almost plateaued and it wasn't capturing the market share from all of this AI spending. Well, I guess it looks like it is. There was a sales jump of 20%, huge margins for the AWS business. And so Amazon is back on the front foot. Yeah, it's interesting that it was almost a narrative that Amazon was fighting here rather than actual business reality because, yeah, it did seem like it had so much of the market had expanded so big that it wasn't growing anymore. But Andy Jassy is like, actually, the exact opposite problem is happening.

8:43We're having capacity issues. This is what all the big hyperscalers are saying, that we don't have enough data centers to bring online to support this AI push. And so yesterday, Amazon announced that they have this new project, Project Rainier. one of its biggest data center initiatives is finally up and running and operational. So some of that supply crunch may be starting to change here. So maybe it was kind of a narrative shift as well as saying, actually, we are dealing with too much demand here. We are going to still grow as long as we can bring this capacity online. I remember back in February when Trump killed the penny and everyone rejoiced.

9:16Well, the hangover has arrived because this is starting to cause chaos at retailers. Since late summer, you might have noticed signs at your local store pleading with customers to pay an exact change because their registers are totally cleaned out of pennies. After President Trump ordered the Mint to stop issuing new pennies in February because they cost 3.7 cents to make but are only worth one cent, the last new pennies were shipped out to banks in August. As those coins made their way through the economy and ultimately to people's coin stash at home, retailers say they're not able to get their hands on enough pennies to produce exact change.

9:49Without pennies to hand to customers, some stores are rounding down, but that can become costly. The Midwest convenience store chain Quick Trip said it's begun rounding down every cash transaction to the nearest nickel, which is going to cost it$3 million this year. Others are trying more creative tactics to refill their penny coffers. Sheets, the pride of Western Pennsylvania, ran a brief promotion that gave customers a free soda if they brought in 100 pennies. Toby Retail and Banking Industry Group say they are happy with the decision to stop producing the penny, but they're also frustrated that it happened so suddenly and without any support or guidance from the government.

10:24Yeah, it's so interesting to think about these retailers and banks rationing out pennies. They become this scarce resource, which is ironic because so many pennies are produced each year. I mean, just last year, they issued 3.2 billion pennies. Where do all those pennies go? They just don't stay in circulation. As they said, they mostly end up in couch cushions. They end up in coin jars. So it is a supply that you have to replenish every single year. and since the government has said we're not gonna make them going forward, you are seeing these penny crunches. It is fascinating. In certain states, it is illegal to round up in transactions, which is why you're seeing the quick trips of the world start to round down, which does have a meaningful impact because a few cents here are over tens of thousands, hundreds of thousands of transactions.

11:09That does add up to the bottom line. So I think the big thing in here, people are pushing for clarity. We just wanna know what to do. Can we go up to the nickel? Can we go down to the nickel? Just tell us some guidance. Right. So the convenience store lobby and the banking lobby is pushing for Congress to pass a law that would allow them to round to the nearest nickel so they don't have to round down because that would that opens up a whole host of legal issues. So they are throwing their weight behind this law called the Common Sense Act, which calls for transactions to be rounded to the nearest nickel up or down.

11:41So they just have some clarity on this issue because they are running out of pennies. And if you go around to your story, you might see it. There's 103 Kroger's in the Cincinnati, Dayton area that put up signs that says the U.S. Treasury has stopped production of pennies, which is now impacting supply. If using cash for payment, please consider providing exact change. The last time retailers had to put up these kind of signs was during COVID when the Fed had trouble distributing new pennies and new coins all across the United States. So, you know, shades of COVID here where retailers are just running out of coins, specifically the pennies, and they're going to have to pinch them.

12:16It's Friday, so you know what that means. Stock of the Week, Dog of the Week, the segment where Toby and I pick one stock that secured the treat and another that got tricked. I won the pre-show Evil Laugh Contest, so I get to go first. And my Stock of the Week is Suno, the AI-generated music startup that seems to be striking a chord with people. The information reported that Suno is generating around$150 billion in annual recurring revenue from subscriptions, quadruple its sales from a year ago. And a separate report revealed that the company is looking to raise$100 million at a valuation of$2 billion.

12:49It shows that AI music is catching on in a big way, a development that some celebrate as the democratization of music production and others fear as the demise of music itself. At a basic level, Suno works like this. You type in a prompt and it'll create a song based on your description. So if you were to say, write a bubbly pop song about an emotionally immature band and include lots of innuendo, it'll probably spit out something that sounds a lot like Sabrina Carpenter. The possibilities are infinite. But that's Suno 101. And in the past year, the company has added more sophisticated features that have attracted paying users who shell out up to$30 a month to access them.

13:24With their tremendous growth, Suno and its fierce rival Udio have caught the attention of the$20 billion music streaming industry. The three big players there, Universal, Sony, and Warner, sued them last year over copyright infringement, accusing the startups of stealing songs to train their models. But at the same time, the music giants want to partner with the upstarts because they're not dumb and no AI is coming to disrupt them. Bottom line, Toby, Suno is one of the few AI consumer apps to hit the mainstream. And I played around with it a lot yesterday. As a lot of people in the office heard, I am not musically inclined.

13:58I am more of a vibes guy and I toss in a song whose lyrics I'd kind of been noodling on for a while and it gave and gave the vibe I want. It's a banger. It is a banger. I've been playing it nonstop. I was genuinely shocked at how little effort I put in and how much I got out of it. But one of the reasons why it's sticking around and it's being lauded as the first AI consumer app outside of ChatGPT to actually have a sticky user base is it is a sticky product to use. As soon as you make one song, you definitely want to make another. And then it also has feature depth, whereas a lot of these AI tools, maybe like a headshot generator, it's a nice gimmick, but it's a one-time thing.

14:36This, if you are a musician, if you do have musical ability, you can start to tweak the hook. You can dive deeper into the premium features. I had no idea what to do with them, and I'm still just in that free tier. But that is the reason why you're seeing such growth and such revenue from this business is because it does have a layer that you can go deeper than just that initial novelty. You remind me a lot of Oliver McCann, who is a British AI music creator. He told the Associated Press, I have no musical talent at all. I can't sing. I can't play instruments, and I have no musical background at all.

15:06Well, recently he became the first AI music creator to sign a contract with a record label because his tracks racked up millions and millions of streams. So this to its supporters like and this does have some supporters in the music industry, Imogen, Heap, Will.i.am. These folks like really love new tools to be able to play with. And they say this is opening up a new toolbox for people to be able to create music. they say this is why this has caught on and this is why people are paying up 30 bucks a month to have this company reach$150 million in revenue. Of course, there's a ton of backlash as well from the music industry, from a bunch of artists who say this is going to lead to basically infinite slop.

15:45You know, Toby, not every AI music creator can create an iconic hit like you can. And so this is going to be flooding our streaming services, Deezer. We don't know how much AI music really is out there because Spotify and other streaming services don't disclose how much AI music is on their platforms. But there is one, Deezer, which is a streaming service. It estimates that 18 % of songs uploaded to its platform every day are purely AI generated. It makes me want to test this out. It makes me want to dive deeper into Suno and see if I can start attracting listeners on Spotify because I don't know how you would know it's AI.

16:23I mean, maybe someone with a very trained ear could, but just to normal people like you and me, I don't know, you have actually a pretty trained ear. I want to run a test and see if, like, can I start to build a following on Spotify? Is it easy to do this just because creating the songs themselves is so easy? So fascinating, you know, paradigm that we're entering into. If you are a musician, I would love to hear people who are in the music industry weigh in on this as well. All right, we're going to take a quick break and come back with our Dog of the Week.

16:53You know that saying, more money, more problems, Toby? Of course. Why do you think my life is so chaotic? Sure. Well, with startups, it's more like more money, more security. Big enterprise deals usually come with even bigger security and compliance requirements. Yeah, the right kind of security posture doesn't just protect you. It can actually make or break a deal. Thankfully, Banta's AI and automation makes it easy for you to get big deal ready in days. They automate your compliance and continuously monitor your programs so future deals never get blocked. Plus, Vanta scales with your company so you'll always have the support you need no matter what growth phase you're in.

17:29Morning Brew Daily listeners can get$1 ,000 off at vanta.com slash morningbrew. That's vanta.com slash morningbrew. Neil, would you rather have surgery performed by a junior resident or a department head? Is that even a question? Give me the doctor with the most practiced hands, please. Customers of Quest software have the same outlook. Quest has been a global leader in data management, cybersecurity, and platform modernization for decades. So now that the AI transformation is here, companies are turning to their established expertise for support. Quest's approach to AI success is based on three priorities.

18:06Trusted AI-ready data, secure identities, and platform modernization that scales with AI demand. And they have thousands of customers around the world, including more than 90 % of the Fortune 500. So on top of Quest's expansive product suite, they use insights from those relationships to inform how companies build AI readiness and success. With something as complex and significant as AI, you're probably going to want to have a seasoned pro in the room with you. Head to quest.com slash brew to get started. That's quest.com slash brew. My dog of the week is obesity because it's trending down. The GLP-1 class of drugs like Ozempic and Monjaro have helped shrink waistlines and grow the bottom line of pharma companies since their release, and now their effects are starting to show up in national health data as well.

18:54According to a new survey by the Gallup National Health and Wellbeing Index, the share of obese U.S. adults fell to 37 % in 2025, down from a high of nearly 40 % in 2022. That translates to roughly 7.6 million fewer obese adults in just three years. While diet and exercise deserve their flowers, injectable weight loss drugs are the key variable here, with 12.4 % of U.S. adults saying that they are users more than double the share of last year. Officials see this moment as a potential public health turning point. If obesity rates continue to decline at this pace, it would reshape the country's long-term health profile faster than any one single policy or wellness trend in the last decade.

19:35It's also boosting profits for the companies slinging this class of drugs, with Eli Lilly reporting third quarter earnings yesterday that blew past estimates on the back of strong sales for its blockbuster drugs, ZepBound and Monjaro. Neil, these drugs have been out on the market long enough that we're seeing their impact on a national scale. Maybe we've seen peak obesity. Yeah, this is sort of a if it walks like a duck and it talks like a duck situation because there's no direct correlation or causation that you can draw from this particular Gallup survey to say that the increase of GLP-1 use has directly led to a decline in obesity.

20:11But common sense says that this is what's happening because the biggest reduction in obesity was among those age 40 to 49 and 50 to 64. Those are the exact same age groups with the highest rate of injectables for weight loss. So if you just kind of put one and one, two and two together, you see that this is actually having an impact. And you also look at the growth and how many people are using it. And yes, Eli Lilly reported earnings yesterday and absolutely blew it out of the water. Monjaro sales were up 109 percent from the same period a year ago. Zepbound was up 184 percent. And it's putting some distance between it and Novo Nordisk, which made Ozempic and Wiggovi and was seen as the leader for many years.

20:53as these things exploded back in 2021. Now Eli Lilly is putting the pedal to the metal and really putting some distance between itself and Novo Nordisk. And we're seeing some bidding wars start to break out as well. Novo Nordisk just launched a hostile bid for this weight loss drug maker, Matt Serra, in igniting this big pharma bidding war. Pfizer had initially submitted a bid to it and then Novo Nordisk came in over the top, 11 % higher than the initial bid. So we are seeing billions of dollars being outlaid here to keep your nose ahead. I mean, I can't help but think about the AI war that's happening in big tech.

21:29The exact same thing is happening in the pharma world with these weight loss drugs where if you aren't developing these drugs, if you aren't trying to stay ahead of your competition, you are just falling behind by default. So I do think that this is the next frontier because obviously we're seeing widespread adoption and it is having real health impacts. So big pharma wants to not be on the losing side of this particular trend. Because in two years when we're having the same exact discussion, we're not going to be talking about Wagovi, Zep bound, Manjaro. We're going to be talking about the new class of drugs that are even better and have, you know, that are easier to ingest and that have fewer side effects.

22:05So the company that Nova Nordisk and Pfizer are in this bidding war over does eliminate a lot of the side effects. They're developing a pill and the pill really is the holy grail because right now it is an injectable to do this. And if you develop a pill that has the same effects or even better effects, then that's going to sell way even way better than the injectable. It's just much easier to administer. So there is a huge arms race right now to develop the weight loss pill. Yeah. One name to remember here is O4glypron, which I practiced before. I dared you to say that on the pod. That's Eli Lilly's next gen experimental GLP-1 drug, which is it is a pill.

22:40It would replace the injectable. All right. Let's bring to the finish with some final headlines. Less than a week before election day, the New York City mayoral race took a plot twist straight out of a Seinfeld episode. On Tuesday, the normally reputable Times of London published a story that quoted Bill de Blasio as criticizing frontrunner Zoran Mamdani's tax policy. It was a surprise development given that former New York City Mayor Bill de Blasio had long been a big supporter of Mamdani. But when former Mayor de Blasio caught wind of the story, he read it and said, huh, that's not my quotes.

23:10I never once talked with this reporter about Mamdani. I demand that you retract this. And he was right. Turns out the Times of London reporter had talked with Bill de Blasio, but not former mayor Bill de Blasio. He talked with 59-year-old Long Island wine importer Bill de Blasio. The two have the same name, but the reporter emailed the wrong Billy Dee, who decided to play along in what he thought was harmless fun. The Times of London acknowledged the mistake and deleted the story from its site. Toby, as if New York City politics wasn't bizarre enough. I mean, I was just confused listening to you explain that.