Apple’s Elon Problem & AI Future

0:04Travis Hoium:Is the government going to take a stake in Intel? Motley Fool Money starts now.

0:19Travis Hoium:Welcome to Motley Fool Money. I'm Travis Hoium, joined by Lou Whiteman and Rachel Warren. Today, we are going to talk about the government potentially taking a stake in Intel, Fox fighting with YouTube, But we're going to start with Elon Musk and Apple. Elon Musk can't seem to stay out of the news for long, and this time because he's suing Apple, claiming they're preferencing open AI over Grok. Rachel, is this a big deal here? It seems like Elon Musk has to sue everybody in the AI world. Is he just trying to promote Grok? Is there a there there with Apple preferencing open AI and chat GPT? Honestly, and I think I want to start with this.

0:57For Apple investors like myself, I think this is a nothing burger. I mean, we know that Apple has not been the AI growth play that maybe some investors had hoped. I do not think that AI is the reason you invest in Apple at this juncture, in my opinion. And I do think its partnership with OpenAI makes sense. I mean, we know that Apple has been falling behind in the generative AI race. And we've been hearing for a long time now them talking about using third-party models to bring Siri's capabilities forward closer to competitors and really update it for the next generation of users. But I want to talk a little bit about the details of what's happening here with this lawsuit.

1:32So Musk's XAI is suing Apple and OpenAI in Texas. Musk is alleging that the partnership to integrate ChatGPT into Siri, as well as Apple's writing tools that it stifles competition, he's alleging that it harms the public interest, that it gives OpenAI an unfair advantage by providing access to billions of user prompts from iPhones. The lawsuit also targets OpenAI for allegedly betraying their nonprofit mission. Remember, Musk co-founded OpenAI with Sam Altman back in 2015. And OpenAI has actually said in the past that Musk wanted OpenAI to be a for-profit entity and that he was actually pushing for control over the company and a majority equity stake for that for-profit structure and then later changed his mind.

2:16For its part, Grok continues to be embroiled in its fair share of controversies. I do think that there is a point to be made that OpenAI retains major control of the LLM space, but Grok has some systemic engineering failures from what we can tell that have made it a far less attractive option for tech companies than OpenAI. So, this is a nothing burger for now.

2:35Lou Whiteman:So, to be fair here, Elon isn't the first to say that Apple is putting its fingers on the scales for the App Store, right? I mean, This is something we've heard before. But that, to me, is the not interesting part of this complaint. The complaint goes far beyond the App Store. And quite frankly, it sounds like a rant, not a lawsuit. Elon's complaining that Apple and AI are basically so afraid of this Grok super app, that's the reason he bought Twitter and the reason he did all this, that that super app is going to just destroy our need for a smartphone, that they are conspiring to keep Grok down.

3:14Lou Whiteman:And, you know.

3:15Travis Hoium:And couldn't it just be the case, Lou, that people prefer ChatGPT to Grok? Yeah. And wouldn't that come out in Discovery? That's kind of the weird thing here is he's opening a can of worms that the answer may not be good for Grok and for X.

3:30Lou Whiteman:Right. Well, I mean, there's good reason. I mean, A, OpenAI was the first out there. If there is a verb in this space, it's ChatGP, right? So, they have just that incumbent advantage with better name recognition. Also, Rachel hinted at this, Grok has had some, shall we say, very well publicized, less than ideal outcomes, which I do think, me as a consumer, makes me a little weary of using Grok. So, I think there are legitimate reasons why it may not be top of the charts right here. Bigger issue for me here, and I think that it's what's going underneath there, is what is the difference between OpenAI and Grok and Gemini and all that?

4:13Lou Whiteman:It might be a matter of having that placement in the AppStar is important because I think, I worry kind of with these companies that we are getting to a point where if this AI works the way it should, and it seems to be moving in that direction, what's going to be the difference between them? what's going to be something that compels you to buy one other than the other how do they differentiate themselves and in that world where you are in the app store rankings really matter and i i think that that is if if elon is showing his cards maybe that's what he's admitting that we're heading towards maybe commoditization yeah and then it becomes a distribution game

4:50Travis Hoium:and then i think you do start to yes your app store ranking matters but it also matters where you're integrated with. You mentioned Gemini. Gemini has announcements seemingly every day with all kinds of new companies. So they do have good models. They obviously, Google has a huge cloud service. But if Gemini is going to be integrated into Google Docs and YouTube and Mail and Android, these are going to be huge advantages for a company like that. You know, Grok is trying to ride X, but X is still, Lou, a pretty small social media service. This is not meta with billions of users. This is a couple hundred million users.

5:28Travis Hoium:I think you and I are very active, but there's not a lot of us out there. It is a pretty limited business. If that's your distribution model, there are going to be bigger players out there.

5:38Lou Whiteman:Yeah. And there is, of course, the Tesla question too. It's like right now, and we'll see how long it takes, but there's just a lot going on behind the scenes with Grock. Like you said, Elon likes to sue people. I'll be curious what becomes of this, but it does feel like to me, again, just kind of frustration with market share in a world where, as you say, distribution, market share eyeballs might be the differentiator, not the tech.

6:03Travis Hoium:The other big news item for the week in this space with these companies in particular is Apple potentially looking at buying Mistral and perplexity. That has been the rumor recently. Reports have surfaced that Gemini could eventually power Siri. That's coming from Google. Apple has not gotten their AI strategy right so far. I mean, Siri is something that's been out for what a decade now. Rachel, is Apple coming at this from a desperate position? Or are they playing 4D chess and letting the market play out before they make a big move, which is kind of what they did with the iPhone? Yeah, I do think that their strategy as an AI play has not been fully coherent so far.

6:40I do think that this is still a company that at its core, this is a smartphone hardware focused business. You know, you're not investing in Apple because of its AI prowess at this point. And I do think that's been a disappointment for some investors. I think there are a lot of people who have sort of watched the different AI-related announcements Apple's made in the last few years and had hoped for more right now. You know, for me as a shareholder, the thesis still holds for me about this business. You know, this is a tech leader with a very powerful, sticky ecosystem that drives user loyalty.

7:08We continue to see really strong growth in other services like its asset-light services business. But, you know, the acquisition of a company like Perplexity, for example, you know, Perplexity has an advanced AI-powered search engine and natural language capabilities. that could really boost Apple properties like Siri. And that could really improve as well their AI platform and user experience. Apple also receives billions annually for Google to be the default search engine on its devices. And acquiring perplexity could provide something of a homegrown alternative and a strategic fallback if they were to have their current deal disrupted by, say, the antitrust lawsuits facing Alphabet's Google Now.

7:45I don't think there's any secret that Apple has been perceived as trailing rivals like Alphabet, Meta, and Microsoft in the AI space. I think that's a reality that they are contending with. And so, acquisitions would certainly be a bold strategy to try to catch up and provide a more significant AI platform. They could attract more developers and users and really keep them within the Apple ecosystem. One other thing that I think is important to note, I mean, CEO Tim Cook has really positioned Apple's commitment to consumer privacy as a core value for the business under his tenure. And that really creates a need for near perfect accuracy in consumer facing applications.

8:21And I think that's also underscored some hesitancy to release what could be potentially imperfect AI features. So they have a long road to go where this is concerned. Perhaps a series of acquisitions could be the best route for them.

8:35Travis Hoium:Lou, is acquiring your way into this business going to be even feasible? I mean, these are huge companies, but it may kind of be the only way for Apple to go.

8:43Lou Whiteman:Yeah. So first of all, I don't want to rewrite history here. I'm had it with this four-dimensional chess thing. Okay. Yes, they did it with the iPhone, but Apple, we can't give them a pass. They tried, they spent a lot of money, and they failed in developing their own AI to date.

9:00Travis Hoium:And by the way, a lot of the people that have been hired by Meta in particular over the past couple of months used to work at Apple.

9:06Lou Whiteman:Yeah, we'll see if that's good or bad. But look, let's not rewrite history. They try. That said, I don't know if they need to have spent all that money. I don't even know if they need to buy something big. Back to my commoditization talk from before. I believe in AI, and I believe it is going to change things. But I believe that there are a number of companies that are spending a really, really big sum of money to get it right. And I don't know if Apple needs to be one of them. Just as with search, Apple owns the customer. I talked about before, distribution might be what matters. I think what Apple has, the customer, that will end up being more important than owning the AI.

9:48Lou Whiteman:We know for years, Google spent billions to have its search attached to the iPhone. I think we could have a similar world here. I think Apple's definition of winning here is different than the others. Apple's definition of winning is AI boosts iPhone sales and causes a generation of upgrades. They are well positioned to do that right now, despite their failures, despite not having bought anyone. I think both, yes, they failed, and they'll be just fine.

10:20Travis Hoium:The big risk is going to be if there is some sort of a new hardware paradigm, which we don't yet see in artificial intelligence. So we'll see how that plays out. Next up, we're going to talk about the government potentially taking a stake in not only Intel, but defense companies you're listening to Motley Fool Money.

10:35Lou Whiteman:As a podcaster, my voice is heard by thousands of people. And now with Vanguard Investor Choice, I can be heard by the companies I invest in too. Vanguard Investor Choice makes it easy for eligible Vanguard fund investors to have a say in how their funds vote at company shareholder meetings. With just a few clicks, you can set your proxy voting preference and make your voice heard on topics like executive pay, board director elections, and more. Investor participation is the heartbeat of a healthy corporate governance ecosystem. You have a voice. Let it be heard. Visit vanguard.com slash investor choice to learn more.

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11:27Travis Hoium:Welcome back to Motley Fool Money. One of the big news items on the market over the past week has been the U.S. government agreeing to take a stake in Intel. Intel actually announced this, but the Trump administration sort of floated the idea a couple of weeks ago. It seems like there's at least an agreement in place. What do we know and why is this kind of a groundbreaking agreement between the government and a private company?

11:49Lou Whiteman:I love you saying that. They agreed to. Yeah. So, there's a lot going on here. And, you know, it's a groundbreaking. We've seen this kind of before, like in the great financial crisis. The thing that's weird here is that it's kind of, you know, going back and rewriting history, because this is all tied to the CHIPS Act. And the CHIPS Act is already law. And under the CHIPS Act, Intel got grants and loans. And we're basically now just after the fact saying, actually, we want equity instead. It's problematic in a way.

12:21Travis Hoium:So for Intel, they're not getting any more money than they previously were?

12:25Lou Whiteman:No. So what's the advantage for Intel? Well, I mean, the advantage of the Intel is it gets the government off their back, I think, if we're honest. And that's sort of why it's problematic to me. Because look, if Intel was on its way to hitting the milestones needed to earn these grants, then it's the government going back on its word. If they weren't, it feels like new legislation would be needed to change the terms. We didn't see any of this. I will say that I'd be more worried if they did this without the cover of the CHIPS Act. Because I think with the CHIPS Act, at least we can say this is normal.

12:58Lou Whiteman:This isn't just randomly going out and taking a stake in a company. But it does add another layer of uncertainty. Intel holders were just diluted by 10 % overnight. As a stock investor, I don't want to see this become common practice. I don't think we're there yet, but I'm at least kind of weirded out by it. Rachel, what was your takeaway? Yeah, there's a lot to unpack here. I mean, as Lou alluded to, this deal with Intel essentially converted about$9 billion in federal grants into an equity stake. And we also had comments the other day from Commerce Secretary Howard Lutnik, which confirmed that the administration is considering taking equity stakes in defense contractors like Lockheed Martin.

13:38You know, there's some major concerns I have on these fronts, but we're here to unpack really the investment angle. So, I will focus on that. I mean, the government's significant stake in Intel or other companies, if that happens in the coming weeks and months, it does minimize the influence of existing shareholders. And speaking to Intel specifically, government involvement could shift Intel's focus from, say, pure profit-driven goals to more national security-driven objectives. You could also see an environment where a government stake subjects Intel to newer additional regulations and restrictions in other countries.

14:10I mean, Intel's own filing notes that the government state could deter third parties from engaging with the company in some cases. And that could obviously potentially affect future financing and strategic partnerships. And of course, probably one of the most obvious concerns here is that the government's interests, whether it pertains to national security or economic policy, might not always align, right, with the financial interests of private shareholders. So it could mark a move towards a more state-engaged economy. It is a significant change from a purely capitalist model. And one has to wonder, could this set a precedent for future government intervention in private industries?

14:48And that would alter corporate governance models. That remains to be seen.

14:51Travis Hoium:The other big takeaway here, there's some Intel-specific parts about this deal. Lou, you mentioned that with the CHIPS Act. But the idea of taking a stake in defense companies that don't have the same funding and grants behind them, that could be really a game changer for these companies, the way that we think about them as investments. So what sort of can of worms are we opening up here, Lou?

15:12Lou Whiteman:Yeah, this scares me. And I should say that kind of part and parcel for the defense contractors is, you know, please the customer. That's kind of how this industry works. I've long argued that the defense contractor, their core competency is understanding how the government works better than most companies. And so, there is an instinct to, if asked, to do it. And you could easily see almost a pay-for-play world. Like we just had the Boeing Lockheed Bake Off for a new fighter jet. What if there's a world where one of those companies said, not only will we offer you this price, but we'll give you a 10 % stake?

15:49Lou Whiteman:And as an investor, that is not a path I want to go down. I am hoping cooler heads will prevail. I don't think there's much of a case for them coming in after the fact saying, we're going to take stakes. I think that that would get into litigation. You wouldn't have the cover of the CHIPS Act. But we really need to think through where we're going here because it would, honestly, for me, change the dynamics of potentially investing in these companies if that is part of the bid process.

16:20Travis Hoium:No doubt the courts are going to weigh in here. So a lot to come, but this is sort of a new piece of the investing world that we'll have to deal with. When we come back, we're going to talk about the latest battle in TV and the future of streaming. You're listening to Motley Fool Money.

17:07Travis Hoium:Welcome back to Motley Fool Money. Now, every media company is trying to build their own streaming app, and Fox is no different, but they're a little later than most. The company recently launched Fox One, which is a standalone property, But they have also picked a fight with YouTube TV, one of the biggest virtual cable companies ahead of the football season. Fox may not be on YouTube TV. So, Lou, is this a big deal? And is Fox playing a hand that is even worth playing at this point?

17:31Lou Whiteman:So, yeah, they are playing the football hand. It's the oldest card in the book. And yeah, America loves its football. So this is when they have leverage. I'll say as a YouTube subscriber who's not really into it, YouTube's offered 10 bucks back if it doesn't come through. I'm kind of rooting for that, Travis, but I know I'm in the minority here. I think you two will came for that reason, that we do, you know, we want our football and so they have to have it. But I'll tell you, I do think I'm ready to move past these dramas. I'm afraid that what comes next is worse. You have the ESPN standalone with ABC.