Apple Finally Joins AI Arms Race & Real Estate LOVES Restaurants

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0:27Good Morning Brew Daily Show. I'm Neil Fryman. And I'm Toby Howell. Today, Apple showed up fashionably late to the AI party, But can it catch up to the level of everyone else? Then Southwest Airlines has been in a funk, but an activist investor thinks it knows how to turn the plane around. It's Tuesday, June 11th. Let's ride.

0:51Toby, first of all, welcome back. Thank you. We're in mid-June. Temps are heating up. Backyard parties are popping up everywhere, which means it's once again time to have the annual debate. what is the song of the summer for 2024? I will tell you what it's not, and it's not Espresso by Sabrina Carpenter. It just doesn't do it for me. I do like her new single, Please, Please, Please. It's a lot better. But I'm going to go with Good Luck, Babe by Chapel Roan. I've recently gone on the Chapel Roan hype train, and it's just impeccable vibes. That's what I want out of a song of summer. I want it to be, it should evoke sunshine.

1:28It should evoke having a good time outside. So mine is Good Luck, Babe. That is a great song. I'm still going with Espresso because I really like that song. A sleeper pick from me is also 360 by Charlie XCX off her new album, Brat. And I've been listening to that album. And let me tell you, it should not be allowed to be listened to before 1 a.m. It is just serious club bangers nonstop. One after another. I was listening to it while prepping for this show like at midday yesterday. I was like, I really should not be listening to this because I need to get to a dance floor right now. But if you want to dance, that album is for you.

2:04And then the third under the radar pick is just the entire Challengers album, which I do prep to this show, too. So if I am very hyped in the morning, you know why. Now let's hear a word from our Purple Prince, our sponsor, Yahoo Finance. You know, there was a major milestone in my browser the other day. You know how when you type a letter into the URL, it suggests websites? Well, when I type F, finance.yahoo.com is the first thing that pops up, taking over the top spot from Fantasy Premier League. Well, the Premier League has been over for a month now, so I would hope so. Yahoo Finance should remain unchallenged until at least, what, September?

2:40Then Fantasy Football might retake the throne. I don't know. I can see the Purple Prince holding out, especially with all the crazy market news from Roaring Kitty livestreams to upheaval in the European markets, which we'll talk about later. I've been typing F into my search bar a lot recently. Yahoo Finance is the place to stay on top of everything, providing the tools and info you need to make financial decisions confidently. Although, Toby, just bookmark it. Save yourself some typing. I'm not a bookmark guy, okay? I like my methods. If you want some more Yahoo Finance in your life, download the Yahoo Finance app on the Play or App Store for real-time alerts on news and insights tailored to your portfolio.

3:15I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year, and I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

3:43Was Ricky Bobby wrong to say, if you ain't first, you're last? Apple sure hopes so because yesterday at its developer conference, it rolled out much hyped AI features coming to your devices months and years after its competitors did. Introducing Apple Intelligence, Apple's flavor of generative AI that it hopes will change the way you use your phone and computers. Specifically, it hopes to make accomplishing tasks a lot easier. At the heart of this push is an upgraded Siri, a voice assistant that will be more useful than just telling you the weather. You can speak and chat with Siri like a normal person, and it'll remember previous conversations.

4:22It has new abilities to dive into your apps and grab information hidden in emails. It can scan the Photos app to grab pictures of you smiling with a fish for your dating app profile. And when it can't accomplish what you want it to, it'll send you to ChatGPT through a new Apple partnership with OpenAI. There were a lot more announcements we can chat about in a sec, but just stepping back, analysts called this the most important day for Apple since the release of the iPhone in 2007. Phone sales have stagnated, innovation has been lacking, and everyone's been searching for the next big thing. Toby, is this it?

4:56Is this the next big thing? Yeah, this was a very important developer conference for Apple because they did need to impress with their AI plans, and I think they did. And you mentioned the Ricky Bobby quote, but I reminded of a scene from Princess Diaries where the Queen of Genovia says, a queen is never late, everyone else is simply early. That's how I think Apple has been approaching the AI race. This is how it rolls when it comes to most trends. They make sure they get it right. They make sure that they do it, put their Apple stamp on it. And a lot of people have been saying AI is this potential disruptor to Apple's kind of hegemony over the hardware market.

5:32But AI is definitely a complement to Apple's business. And I think that's what we saw here. They're integrating it in a way that feels very Apple-y. And I liked a lot of what they said. Right. It is very Apple-y. I mean, Apple has a tendency to not adopt the same language as everyone else in the market in order to differentiate itself and say, hey, we're doing things the Apple way, which is often a focus on security. When it rolled out the Vision Pro headset, again, not the first company to roll out a virtual reality headset. But they didn't call it virtual reality. They called it spatial computing.

6:03And in the same way, they're not calling this artificial intelligence. They're calling it Apple intelligence, which somehow has the same first two letters. So it's kind of the same thing. But again, they're putting their spin on it. They put a big emphasis on security by saying a lot of the AI computing is happening on device rather than on the cloud. And when it needs to go to the cloud for those very heavy computational things like ChatGPT is doing, then it'll be on a secure server and Apple will not take any of your information. That led to Elon Musk saying maybe that he would ban Apple devices of any employees at his companies.

6:39We don't know whether that's a real threat or not, but definitely the security conversation is one Apple wants to own. Yeah, let's dive into the upgraded Siri assistant because you're right. For so many years, Siri has just basically been a place to check the weather, maybe set reminders, set alarms. And I do think like the holy grail for an AI assistant is one that you can interact with via voice that has enough access to your personal data, like your calendar, like your messages, like your email to actually be helpful. And it does look like Siri is positioned to be that. I mean, the example that they cited in their presentation was maybe your mom is coming in on a flight.

7:15You can ask Siri like, hey, what flight is my mom arriving at? Then you can ask Siri where your lunch reservation is. Stuff like that is actually a game changer because that would have taken multiple text messages, sorting through your inbox, seeing the email that your mom forwarded to you, maybe even a call to your mother. I mean, you should always call your mother. But Siri, if it has access to your unique ecosystem, then it can actually be helpful, which feels like it's been a long time coming. but it seems like Siri's about to get a massive upgrade. The big question here is, will these AI upgrades lead to people upgrading their phone and buying new phones?

7:48Because people have been holding on to their iPhones longer than ever. In Q1, Apple posted a 10 % drop in year-over-year iPhone sales. So it needs people to start buying new iPhones. And a lot of these AI capabilities are only coming to the iPhone 15, or later they're gonna introduce the iPhone 16 later this year, or the most advanced computers that they rolled out. So people aren't buying new iPhones. Will they buy new iPhones, upgrade from the 13 or the 14 to the 15 or the 16 because they have an advance here? I think that is the main question, and that will lead to the next wave of growth for Apple because right now sales are falling or stagnating.

8:25Its stock price has lagged behind its peers like Microsoft and Google. So that's the big question here. Will you buy a new iPhone to get a better Siri? I think the answer might be yes. southwest has a long been known as a budget-friendly airline where you pick your own seats and bags fly free but elliot investment management thinks that southwest management is flying the plane in the wrong direction the activist investor has built up a nearly two billion dollar stake that it is wielding to criticize the company's outdated strategies and poor execution and elliot does have a point after 47 years of consecutive profits things have gone more south than west since the pandemic southwest long known as customer friendly suffered a major reputation hit after a combination of bad weather and overwhelmed technology systems led to a big outage in 2022 and its stock has suffered as well down by more than half in the past three years it's currently trading lower right now than where it traded in march of 2020 elliott wrote a letter outlining its plan to turn things around which involves freshening up the board with new blood and modernizing company that exhibits a quote stubborn unwillingness to evolve Neil, the stock had its biggest single day gain since November 2020.

9:35So people are clearly excited about this injection of new blood. This is exactly about fresh blood because the two guys that have run Southwest have been at the company since the 1980s. Bob Jordan, who's the current CEO, and then Gary Kelly, who was the CEO for many years before that. They have adopted a very rigid approach to running this airline, and maybe that's worked in the past. I mean, they have the same plane, a Boeing 737. They do not have different boarding classes. They haven't given an opportunity to sell more to customers. I mean, that's retail 101. When you go buy a pizza, they ask, do you want a soda with that, right?

10:11But Southwest does not do that. Meanwhile, the rest of the airline industry has started to do that. You have all these different seating options. You can pay more for—I mean, you have to pay more to check a bag. You have to pay more to get an upgraded seat. Southwest has been so stubborn and rigid in its business model, and maybe that's worked previously, but Elliott is one of many investors who say, look, you've got to innovate with the times, and you're not squeezing as much money from consumers as you could possibly be. Yeah, Southwest does have a Boeing issue. Let's dive in onto that point.

10:42For years now, Southwest has been able to keep maintenance costs very low because they fly the exact same type of plan, the Boeing 737, which is notorious right now because obviously Boeing's had a lot of issues with those deliveries. and in March, Southwest said it was going to have to re-evaluate its entire financial outlook because it's getting less jets, Boeing jets than expected. Its shares fell 15 % on that news. And until Boeing can work out its supply chain, Southwest growth prospects are going to be severely constrained because unless it opens it up to newer and different models of planes, then it's going to be constrained by Boeing, which is never what you want as a company to be at the mercy completely of Boeing.

11:22Yeah, let's talk about just activist investing in general, because there definitely was a surge in that. This year we had Nelson Peltz with his big proxy battle against Disney that he lost. He tried to get board seats. Elliott does this. It's so weird to say Elliott, but it's actually an investment firm. It's not an actual person. Elliott does this at many companies. It recently took a stake in Texas Instruments, and maybe it wants it to roll out TI-95 or something. I don't know exactly what that is, what's going on over there. But they tried to push for changes at companies. It can eventually lead to a bitter board battle where they take their pitch directly to shareholders.

11:59Elliott typically does not do that. They bully companies into submission kind of right away where companies do take changes, like maybe changing up the chairman and the CEO. It doesn't look like Southwest may do that, but that's Elliott's game plan is to take a big stake. And they are one of the largest shareholders in Southwest right now, a$2 billion stake. This is a$16 billion company. So that's a lot of voting shares right there. and they're going to push for changes that they want to see. And Elliott has done well with their activism. Companies that they've built stakes in that have replaced their CEOs recently are Crown Castle, which is a big wireless tower owner, NRG Energy, and then Goodyear Tire.

12:35So those are three companies that have kind of bowed to Elliott's will. So we'll see if Southwest is going to be the fourth. We're just about halfway through the biggest election year in history, but Sunday night's results from the EU parliament elections may have sent the biggest message of all. Far-right and populist parties scored major gains in the bloc, while French President Emmanuel Macron's party got trounced so badly by the far-right that he stunningly dissolved parliament and called for snap elections. Investors did not take this news in stride. European stocks and bonds fell across the board, while the euro tumbled to its lowest level against the U.S.

13:10dollar in a month. French banks got pummeled the most of any sector because more populist leaders have been known to target them with regulations like windfall taxes. Zooming out, the results of the European election show the continent's voters moving to the right, voicing their displeasure with inflation, slower economic growth and immigration. Among the many consequences of the shift is to potentially put some of the EU's most ambitious climate plans, such as the European Green Deal that targets net zero emissions by 2050 on ice. Toby, all of Europe is trying to make sense of what happened this weekend.

13:42But it's really France, the world's seventh largest economy that's at the epicenter of this earthquake. Yeah, this uncertainty is just rattling a bunch of markets. The fear is that if Macron is forced into this weak position and forces them to govern a hostile government, it would just make everything more difficult. It's very hard to pursue a policy agenda when you have a hostile parliament. Hard to get the government's finances back on track, too, which is something else that kind of roiled the markets. Let's talk about why bank stocks in particular, though, worse hit so hard. Essentially, populist parties often portray banks as almost part of the elite establishment that they are railing against.

14:21They're seen as these powerful institutions that they're prioritizing profits over the interests of ordinary citizens. So it has long been a rallying cry and honestly a industry that populist movements target. And so that's why bank stocks were sliding the most even as the overall market slid as well. Yeah, we've been charting this populist rise in Europe for a long time. I don't know. Remember, was it last year or earlier this year? We talked about the farmers protest and they were protesting more integration into the EU and these climate policies that required farmers to take a more green stance on their particular processes or the way they're doing things.

15:01And that was just too fast for a lot of them. So they blockaded a ton of roads and put a lot of pressure on not just the French government, but governments across Europe. So we're looking forward to this election in France. Well, I don't know if we're looking forward to it because Macron's probably scared. But it is a gambit to say whether he can hold on to power here or there will be a parliament that puts him in opposition and blocks a lot of the things that he wants to do. Meanwhile, it's not the only election that's coming up. The U.K. has a big election coming up for the first time in five years in on July 4th of all times.

15:32and Rishi Sunak, the conservatives, they've been in power since 2010 and they could also see their power slide out from under them to the Labor Party. That would be a shift to the left for the UK. But there are a lot of elections coming up. Investors don't like uncertainty. And then the biggest one of all, of course, is in November in the United States. Up next, all of a sudden restaurants are the hottest corner of the real estate market. Eczema isn't always obvious, but it's real. and so is the relief from Evglyss. After an initial dosing phase, about four in 10 people taking Evglyss achieved itch relief and clear or almost clear skin at 16 weeks.

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16:40Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EPCLIS. Before starting EPCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ePCLIS.lily.com or call 1-800-LILY-RX or 1-800-545-5979. Tuesday on NBC. Jimmy Fallon and Bozema St. John host a highly anticipated new competition show. I hired ten creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea.

17:16This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere Tuesday on NBC. Hi, welcome to Toby's Trends. What can I get started for you? Oh, you want to hear about why restaurants are suddenly a real estate darling? Sure. You want fries with that too? Oh, broccoli. I see you leaving room for dessert. But yes, today's edition of Toby's Trends, where I comb the internet for a trend you should have your eye on, is all about the restaurant industry's glow up. According to a Wall Street Journal article, food services accounted for more than 19 % of all retail leases last year.

17:56That's the biggest piece of the retail pie ever recorded for a single category since statistics were kept starting in 2007. Why are there so many restaurants everywhere? Well, the demand is there. The average American household spent over half their food budget on food away from home last year, up 10 percentage points since 2003. And total restaurant sales are on track to top$1.1 trillion this year, up 5.3 % from last year's highs. Neil, the big story here, though, is how landlords feel about restaurants. They used to kind of hate them because restaurants can fail and their buildouts are often pricey, but now they love them.

18:32It's a steady bet. And I think people are just realizing in this post-COVID world, dining out, eating at a restaurant is just fun as hell. It's so fun. You don't have to make, you don't have to make food. You don't have to clean up anything. And people bring food to you, get to sit with your friends, you get to drink, get to have a great time in a lovely atmosphere. I think people are just realizing that restaurant, going to a restaurant is so freaking fun. And another point of this that wasn't mentioned and I think is very key is that grocery inflation. People are going to the grocery store saying, wow, I can make this elaborate meal at home.

19:02Not even an elaborate meal, just mac and cheese, Annie's mac and cheese. But look at the price. It's so expensive. I could just go out for maybe a dollar or two dollars more than make food at home. And I think that is also driving a lot of this restaurant spending that we're seeing. Two other data points, too. Foodie Coulter is at an all-time high. TikTok is just supercharged. everything essentially like a new hot restaurant hits TikTok and becomes even hotter. But another interesting data point too is that millennials are marrying later and having kids later and single households are less likely to grocery shop than families.

19:35So that has led to an increase in restaurant spending in recent years, according to analysts. So that's a very interesting second order effect is that people are remaining single for longer and you're right. It is more fun. I'm sure parents listen to your restaurants are so freaking fun spiel there and said, Well, not when you have screaming children around. So the fact that millennials are starting families later has led to a mini restaurant boom as well. WeWork's former New York City headquarters has been taken over by someone else, and you'll never guess what it is. Another co-working company.

20:07Industrious signed a 10-year agreement to manage office space at Tower 49 in Midtown Manhattan, scooping it up from WeWork, which just emerged from bankruptcy and is shedding many of those expensive long-term leases that bled it dry. The symbolism smacks you straight in the face. WeWork's collapse doesn't necessarily reflect the health of the broader co-working sector. Industrious, for example, tripled revenues in the last four years, and sales are growing at a 40 % annual rate. It said it looked at more than 70 takeovers of former WeWork sites, but this one on 49th Street was the perfect building, perfect location, to build a mega site for experimentation.

20:44but I can't help but wonder whether they wanted this space just a little more as a physical emblem of their victory over Adam Neumann. Yeah, we've been talking about this trend on the show for a while now. This feels like it should be the golden years for WeWork. Landlords definitely want flexible options in their building and help some competes with other office buildings. Workers certainly want some flexible off space because going full-time work from home from your apartment just ain't it. So there's demand on both sides and clearly Industrious has picked up on that. It is extremely ironic.

21:17And yes, you said it slapped you in the face because WeWork should have been capitalizing on this moment right now because demand is so high, but instead it's its competitors that are capitalizing instead. Well, Industrious has a completely different business model than WeWork and they've been chiding WeWork for their business model for a long time saying this is not sustainable. WeWork took out these long-term leases from landlords and then offered them to tenants on very short-term leases that were very dynamic and you didn't know demand was very fluctuating. We were in a WeWork, Morning Brew was in a WeWork one day in 2017, then we weren't in a WeWork a few months later.

21:51So the gap between these long-term leases, very, very expensive, and the short-term tenants that you're offering them to as a sublease is just didn't, obviously did not work out for WeWork. Industrious instead partners with landlords as a sort of real estate operations manager and manages the space for them. And then they do a profit or a rev share. And that de-risks or shares the risks of these long-term spaces a lot compared to WeWork. So Industrious has been hammering this for the past decade, saying this is the way to do it. It's much less risky than the WeWork model. And then they're proving themselves out by literally taking over WeWork's headquarters.

22:29Another company I want to call out in the co-working space is called Work Simple, and they are targeting older office buildings in secondary or tertiary markets. So instead of buying WeWork's flagship location in New York City, they go snap up the kind of zombie office buildings in smaller markets like San Antonio or Omaha because a lot of people in the kind of the suburbs do also want to get out of the house. Again, full-time work from home, while it's great for flexibility, people do want to still work in an office space. So I think that there's a lot, a lot of people look at co-working as kind of this monolithic industry, but there are tons of smaller players with each their own unique wedge into the market.

23:06And Work Simple is another name I think you should keep an eye on. Martha's Vineyard is running out of marijuana. No, a group of college kids with a case of the munchies didn't suddenly descend upon the Massachusetts island and buy up all its stock. The problem comes from the fact that it's a Massachusetts island. Despite marijuana being legal en masse for seven years now, the state's Cannabis Control Commission supports a position that transporting cannabis across the ocean by plane or boat might run the risk of violating federal laws. So even though there are routes to Martha's Vineyard that stay fully within the state's waters, the two dispensaries on the island are slowly running out of supplies.