Morning Brew Daily - OpenAI Drops $6.5B To Kill the iPhone? & Tariffs and Boycotts Hurt Target

Episode Date: May 22, 2025

Episode 588: Neal and Toby have more on why Jony Ive is teaming up with Sam Altman as OpenAI buys the ex-Apple designer for $6.5 billion Then, Target struggles with tariffs and backlash from customers. Also, Universal is taking on Disney in the parks arena with their brand new Epic Universe theme park. Meanwhile, Neal shares his favorite numbers on the stealthy wealthy, safe college majors, and the semicolon. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Visit endthecampaign.com for more Listen to Morning Brew Daily Here: https://www.swap.fm/l/mbd-note  Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Worst Bitcoin Transaction Ever  03:40 - OpenAI Gets Jony Ives  08:05 - Target Woes 12:00 - Universal Epic Universe Opens 17:45 - Neal’s Numbers  25:00 - Headlines Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today Universal opens Florida's first major theme park in 26 years, and Disney isn't exactly saying be our guest. Then Sam Altman wants to build hardware for the AI age, and he just got Apple's best ever designer to help him do it. It's Thursday, May 22nd.

Let's ride. Today is the anniversary of one of the worst financial transactions of all time, maybe even worse than the French selling the Louisiana territory to Thomas Jefferson. On this day in 2010, a programmer named Laslo Hania spent 10,000 Bitcoin to buy two Papa John's pizzas. At today's prices, those 10,000 Bitcoin would be worth over $1.1 billion, making those pizzas the most expensive pizzas ever sold. The pizza purchase is considered a seminal moment in the history of crypto and celebrated every year as Bitcoin Pizza Day. Happy Bitcoin Pizza Day, Toby.

Thank you, Neil. This day is always circled on our calendars. because for as bad of a Thursday as you think you may be having, at least you didn't pay over $1.1 billion for some pizza. By the way, poor Lasso gets all the heat for this pizza purchase, but the recipient of the 10,000 Bitcoins was Jeremy Stu DeVant, a 19-year-old who facilitated the pizza delivery, and he later used those Bitcoins to fund a road trip with his girlfriend across the U.S.,

also unaware of its future value. So that was undoubtedly both the most expensive pizza of all time, and also the most expensive road trip of all time. And now a word from our sponsor, Iterable. Neil, you ever get a call from someone who clearly thinks you're someone else? One time this guy left me a three-minute voicemail thinking I was his plumber. He really wanted me to swing by and snake the drain. Yikes, have you ever snake to drain nasty stuff?

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U.S. second half 2025, all rights reserved. It must provide a recent consumer mobile bill in the name of the person, and Regime me the deal, additional terms, conditions, and restrictions apply. Open AI is diving headfirst into hardware, and it got the best in the biz to take it to the promise land. Yesterday, the company announced it is acquiring I-O, the AI device-focused startup co-founded by the legendary Apple designer Johnny Ive. The move brings the mind behind Apple's most iconic products, including the iPod, iPhone, and iPad under Open AI's orbit, where I've will have the chance to shape a new generation of computers with its first design set to debut sometime next to. year. The deal which values I.O. at just shy of $6.5 billion is OpenAI's biggest acquisition ever

and folds IOS 55 employees into a new Open AI hardware division. The collaboration also unites Silicon Valley royalty and marks a major bet from Altman that the future of AI is not just a software or a chatbot, but something you can hold. We've been waiting for the next big thing for 20 years, Altman said. We want to bring people something beyond the last. legacy products we've been using for so long. That not so subtle dig at the status quo in a declaration that I've and Alman are working to replace it is something investors notice as well with Apple's stock turning negative on the day after the announcement dropped. I believe everything I've done in my career was leading to this I've said yesterday in a launch video. And as someone who helped

design the core of Apple's product line that turned it into the biggest company of all time, that is a lofty claim, Neil. of all, would love to start a company and then sell it one year later for $6.5 billion without having made a single product. That's what Joni I've did. And I'm not him. And that's why he's getting paid $6.5 billion from OpenAIA. He designed the iPhone. He designed the iPod, iPad, Apple Watch. He left Apple in 2019 looking for new things in the past five or six years. He's kind of wandered around looking for what he would do next. It finally feels like he's found something he can sink his teeth into.

And he's linking up with Sam Altman. And you can't help but think of the parallels between Johnny Ive working in close partnership with Steve Jobs for so many years, another visionary. And now Sam Altman, who perhaps in the minds of some people is the next Steve Jobs. Yeah, Ives' AI journey is wild and probably a lot more lucrative than a lot of us. Two years ago, one of his 21-year-old sons was playing around with ChatsyBT. I've came over and then immediately reached out to Altman after using the product. They became friends. And now he just sold his friend, his company for $6.5 billion.

Classic friend move, am I right? Neil, find me better friends or no offense to yourself, but you're not buying my Starz for $6.5 billion. So yes, that seems like a lot of money. And it is a lot of money. But if you build the iPhone for AI, then no. So it's a bet from opening eye with asymmetric upside here. They think that Johnny still has his fastball, and he can rethink basically how we interact with technology in computers today,

because that is what they are after. I don't think that we're going to see something with a normal form factor. They're not trying to make the next iPhone. They are trying to pursue something that is completely different. Sam Allman said, I think we have the opportunity here to kind of completely reimagine what it means to use a computer. I don't know what that means. Is it glasses?

Is it something else? Yeah, do you have thoughts. Many have tried to do this already, and we've talked about it on this show. There was the humane AI pin. They thought that wearing a pin on your shirt would be the next form factor that you could interact with AI and move beyond the iPhone. That was a complete disaster. There was the Rabbit R1 device that was super hyped. That also flopped.

Perhaps the only company that's kind of figured it out, and it's a marginal step forward, is meta with the rayband glasses. They have these AI glasses that you can talk to and sort of have this augmented reality vision of the world overlaid. The exciting thing here, I think, is we don't know what they're going to come up with. And Johnny Ive has such an amazing track record of building and designing this really world-changing products. And that's why he's worth the money, according to Open AI. But it is a huge bet. It is a risky bet and it is expensive bet. and Open AI is still not making any money. It's unprofitable. And so we'll see what happens with Open AI's

finances because they're outlaying a huge amount of money on a very unproven hardware bet. Yeah. And I have to say, too, pretty big fumble for Apple here because six years ago, Apple said that, hey, we're going to continue working with you, Johnny I, if we're going to come up with some new project. That never happened. And instead, he's going to be designing devices for a company that wants to basically kill the iPhone. So if you're looking, if you're an Apple exec, kind of looking at this deal go down, one, you're a little nervous,

and two, you're just kicking yourself under the table because you had Johnny Ive. Like, he was your guy, and now you lost him to open AI. For a company called Target, it's sure been missing the mark a lot these days. The embattled retailer reported that sales fell again last quarter

as a company struggles with backlash to its DEI policies, as well as tariff headwinds. Target CEO, Brian Cornell, blamed the macro environment for issues saying that five consecutive months of declining consumer confidence and uncertainty regarding the impact of potential tariffs were the major roadblocks the brand was facing. The stock is now down 40% over the past year and is forecasting low single-digit sales for the year ahead, which would be Target's third straight year of declining sales. Target's struggles stand in stark contrast to other retailers like Walmart and Home Depot, who showed climbing revenue and reaffirmed their full-year sales outlooks this past week. Part of the divergence stems from the fact that Target relies more on discretionary spending

on items like toys and electronics, so it's taking a bigger hit as people prioritize necessities like groceries, which plays into a company like Walmart's hands. Plus, around half of its products are imported, leaving it especially exposed to tariffs, and having to choose between absorbing higher costs or passing them on to consumers. So, Neil, things have gone from bad to worse to worser for Target, who just can't seem to turn things around. This is a company that is not executing well at all right now, kind of like the Knicks down the stretch last night. I mean, I'll just run down some numbers. Target lost market share in 20 out of 35 categories during the last quarter.

Its annual revenue has been flat for four years in a row. It's not growing at all. And then when you talk about its competitors, it's getting its lunch eaten, especially by Walmart, its comparable sales growth, has lagged behind Walmarts for 13 straight quarters. So the CEO can blame all sorts of external factors, but that's exactly what every retailer is dealing with. They are just not putting out items that people want to buy. People go to Target for cheap chic, like cool stuff that will look good in your house. They don't need to buy it, but they want to because it is cool.

Target is just not putting those items on the shelves. And they said that their turnaround planned involves going back to that Tarjeet brand. And literally the execs were like, we need to just put out more interesting products. And I was like, duh. Yeah. I mean, it does seem simple on the surface, but they just can't seem to figure it out. They've also been contending with some boycotts as well that led to declining sales. Because kind of early on in Trump's presidency, they rolled back some of its diversity, equity,

and inclusion initiatives, eliminated minority hiring goals. And that move sparked a lot of backlash from customers. who felt like it was a betrayal of what the brand stood for for a long time. So that rollback in January was just a 180 for a lot of people and felt jarring, especially as someone, as a brand that you thought you knew for a while. And then this relationship totally changed with them. So that's also led to declining foot traffic, which, you know, doesn't help when you're also contending with all these other factors.

The one thing that was baby positive in this earnings report was that Brian Cornell said, the CEO said they're not going to raise prices broadly because of tariffs. Walmart irked the president when they announced that last week. They said prices are going up at the end of the month. Target said, look, we constantly adjust prices. Some are going up. Some will be reduced. This is just an ongoing effort that takes place each day. So they are sort of getting out of the way of the president's fire by saying we're going to hold down prices. Maybe it'll lead to them recouping some market share that they lost. It was very funny. On the earnings call, reporters kept asking, analysts kept asking, like, please provide specifics around the company's

plan for pricing. And he kept dodging and weaving saying that we're going to pull levers here and there. So we don't necessarily know exactly what they're going to be doing despite being pressed about it. So yeah, he knows that he doesn't want that sound bite escaping that we are raising prices. Central Florida is about to turn into a battleground pitting Mario, Harry Potter, and Dragon Trainers on one side versus Mickey, Elsa, and the Guardians of the Galaxy on the other. That's because this morning, Universal is cutting the ribbon on the fourth park of its Orlando portfolio with the opening of Epic Universe, the first major theme park to open in Florida in over 25 years and the biggest threat yet to Disney World's dominance in the region. Epic Universe cost parent company Comcast over $7 billion and took eight years to build, but early reviews say it's epic enough to live up to its name and price tag. The park itself consists of five mini parks, one entrance area called Celestial Park, which split.

off into four others, a park devoted to Harry Potter, another to characters from Nintendo games, another based on the How to Train Your Dragon franchise, and finally, Dark Universe, in which you'll find classic monsters like Frankenstein. Why is Universal making such a colossal investment in a new theme park? For one, roller coasters and highly caloric foods are maybe the one area of the media world that's not being eaten by TikTok and YouTube. Two, the company really thinks it can swipe some market share from Disney in Orlando, where it's been the leading player since Walt first opened Magic Kingdom in 1971. Toby, you think Mario and Harry have enough firepower to draw people away from Disney's machine, or is it just too small of a world after

all? I do think that they have the firepower because early reviews have been, apparently it's just absolutely amazing. One influencer told Business Insider recently that this is exactly what themed parks should be and could be in the 21st century. Another travel agent said that it's spot-on gorgeous with theming that's literal perfection. So these are people literally heaping praise on this new park because it is the most modern park we've seen thus far. But here's the big question, is it going to hurt Disney? And the one person who doesn't really think it's going to hurt Disney is Disney's park's chief,

Josh DeMorrow. He said he's not really shaking in his boot. If something is built new in central Florida, he said, like Epic Universe, and it brings an additional tourists, I can almost guarantee you that the new tourist coming into the market is going to have to visit Magic Kingdom. So they think it's a rising tide, floats all boats here. If Epic Universe actually does attract all the tourists that they think they're going to, those people are probably going to go check out Disney as well.

So that might be an optimistic spin zone from a competitor or it might be safe. I actually think that's right, though. I mean, if you look at any type of business, they set up shop in the same area as other businesses, and that's just generally a one plus one equals three situation. I mean, you've been on those roads where there's a million auto dealerships. And that's because people go to that one area of town to hop around and more people would go to that any particular dealership than they would if they were all alone. And that's something that's similar happening with theme parks. I think he's absolutely right that this would be overall good for Disney.

However, they might lose some customers at the margins. The thing is they have such a wide lead right now that they would have to really fumble the bag to lose that leadership position to Universal. in 2023, Walt Disney World attracted nearly 49 million visitors, which is more than double Universal's attendance of nearly 20 million that year. So Universal is on the up. I mean, they launched Harry Potter World in 2010, and the CEO of Comcast is like, I mean, that just saw a spike in visitorship, and then it hasn't come back down.

Like, that has been a gold mine for us, and now they're expanding their Harry Potter World with this new park. I'm excited. I know. Let's book our tickets. I have been to a theme park. in so long. I'm from Florida, so I really should make a trek back down there to try it out. Up next, we got Neal's numbers.

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that will make you the most interesting person at your Memorial Day weekend barbecue. For my first number, if you want to get really rich in today's America, quit your desk job and start a company making machines that rip up flooring. That's what Derek Olson did, and now he's part of the top 1% of earners in the United States who made at least $550,000 per year. Known as the stealthy wealthy, Olson and other owners of really boring but essential companies account for an increasing share of American one percenters. According to the Wall Street Journal, the largest source of income for the top 1% in the

U.S. behind a paycheck is owning a medium-sized regional business. Think beverage distributor, car wash, residential lighting company, or manufacture of car floor mats. 35% of the wealth for the top 1% of earners comes from these kinds of businesses up from 30% in 2014. And Olson's story is a fascinating example. He owns national flooring equipment in Minnesota, which makes machines that remove flooring from places like elementary schools. The average elementary school in the United States has seven miles of carpet and children are disgusting, he told the journal, meaning that schools have to replace their carpets every year, providing him steady business. His company will bring in 50 million.

dollars in revenue this year, and he's got two land rovers, sends his kids to private school, and takes a month-long summer vacation in Europe. Toby, why build in public when you can be stealthy wealthy? Stealthy wealthy is just fantastic branding for this class of people, and a lot of things have been kind of flowing in their favor of the last few years that power these business owners into the upper echelon of earners in this country. One, just a lot of tax cuts in recent decades have supported business owners and then low interest rates as well have led to, you know, a surging company valuation. So even at the 0.1%, that's where you're seeing a lot of these extremely rich entrepreneurs who founded these businesses that, you know, sound AI generated,

like national flooring company doesn't sound like a real place, but that's exactly where a lot of the money is coming from here. So just fascinating to see how much of wealth in America is accumulated by people who run really, really boring businesses. But really, really lucrative. Lucrative, yes. For my second number, you know that woman who is looking for a man in finance? Well, maybe she should be looking for a man in philosophy instead. A study by the Federal Reserve Bank of New York found that majors in nutrition, art history,

and philosophy outperforms STEM fields when it comes to employment prospects. And by employment prospects, we're talking unemployment rates for recent college grads. For computer science and computer engineering majors, the unemployment rate was 6.1% and 7.5% respectively, much higher than the national average. On the other hand, the unemployment rate for nutritional sciences was just 0.4% and for art history majors 3%. And in a head-to-head matchup of finance versus philosophy, I think, therefore I have a job. Finance majors have an unemployment rate of 3.7% compared to philosophy majors of 3.2%. Now, if you do snag a job in finance or STEM, you'll earn more than you.

than if you studied art history. Computer science and engineering students have a median wage of $80,000 coming out of school, the most of any major. Still, these numbers point to increase demand for students with backgrounds in the humanities. Yeah, this was very surprising. It probably shows that there's a fundamental disconnect between what student ideas of employable majors are and what the job market is actually giving them. And it probably stems back to the fact that our concept of a good job are, meaning like recent college grads, probably comes from your parents. And your parents' idea of a good job probably comes from the job market 30 years ago. So it's creating kind of a little bit of not symmetry between grads and what jobs they're actually getting. Again,

these numbers are probably pretty small in difference. So it's not like every philosophy major has a job and every STEM major doesn't have it. We're talking like 2% here and there. But who would have thought that nutrition art history and philosophy would outperform the STEM fields? Maybe BlackRock would expect that, though, because their CEO, recently just said that the firm is adjusting its hiring strategy for recent grads because they said we have more and more conviction that we need people who majored in history, in English, and things that have nothing to do with finance or technology. So that's the biggest as money manager in the world saying those things. So clearly there's been a shift in how the job market,

and how prospects are being valued on it. For my final number, no one uses semicolens anymore. A new study from the learning platform Babel found that usage of the semicolons in British text has plunged by 47% over the past two decades, while one appeared in every 205 words in 2000. Today, it's every 390 words. Meanwhile, another study found that 67% of British students never or rarely use the semicolon, while just 11% of respondents said they were frequent users. Depending on who you are, you're either dancing on the semicolon's grave or mourning the demise of an elegant punctuation mark. Plenty of famous writers have weighed in on both sides of the debate. Kurt Vonnegut urged, do not use semicolins. All they do is show you've been to

college. Lynn Truss, author of Eats, shoots and Leaves, went even further, saying many writers hooked on semicolons become an embarrassment to their families and friends, but the semicolon has its defenders too. Abraham Lincoln once said, I have a great respect for the semicolon, semicolon. It's a very useful little chap, though I should note there is not a single one in his Gettysburg address. And in its eulogy for the semicolon, the spectator writes, we must resist this decline. Like napkins, black tie, and having a glass of champagne before lunch, the semicolon remains a bulwark against civilizational decline. Toby, the semicolon has elicited is a hot dog, a sandwich level of divisiveness? I don't think I've ever used one correctly, by the way. I literally had to go back and look up

what is the proper usage of it, and it's just between, it's separating two separate clauses. And so technically you could replace it with a period and would still have two coherent sentences. But yeah, I have not necessarily upped my semicolon usage since leaving high school. What is interesting, though, is that the semicolon occupies a unique place in a modern culture as well because when texting first came out and you had to compress your messages into much smaller and smaller packages because, you know, you didn't want to, that's all early phones could support. Emotocons became a very popular use. you know, the winky face of the semicolon.

So it started being used that way. But then emojis came along and started like basically taking emoticons behind the woodshed because they can convey a much wider range of emotions. So even emojis have killed a semicolon usage in its emoticon function. So it's just getting it from all sides here, literarily, and then also just emoticonally as well. Okay. Let's sprint to the finish with some final headlines. You might have noticed your portfolio looking a lot.

little bruise this morning, and that's because the GOP's tax and spending package, that one big beautiful bill is causing more concern about America's fiscal situation. Stocks crumpled to their worst day in a month, while bond yields surged even higher, a sign that investors are demanding a higher premium to hold U.S. bonds. Republicans in the House will attempt to pass the bill today, which is expected to add trillions of dollars to the deficit over the next decade by extending tax cuts. And traders are still angsty over the Moody's credit rating. They're throwing a tantrum. Yeah, if you looked at your portfolio yesterday and go, what the heck happened? It probably was this bond sale. And then, yeah, there is just a confluence of the bunch of factors because

you are still coming off this downgrade. You are still seeing this bill progress through Congress as well. Toss in some weak retailer earnings like we just saw with Target. And the fact that higher bond yields can pull investors away from other assets like stocks. And and of course things are going to turn ugly pretty quickly there. So this is just basically a PSA saying if the stocks look fine early in the day and then they did not look fine later in the day, now you know why. Finally, the four British explorers who tried a high-speed summit of Mount Everest, controversially aided by xenon gas, pulled off their record-setting climb early yesterday.

Remember these guys, former British Special Forces soldiers, who pre-aclimatized themselves to low oxygen by inhalinginging. xenon gas, allowing them to skip the typical six to eight week period that your body typically requires to adjust to high altitude. In total, it took the foreman just under five days to go from base camp to summit, not the fastest time ever to reach the summit, but the fastest assent without a climatizing first. They think inhaling xenon gas to boost production of a specific protein in their blood that fights off hypoxia helped bring base camp to them and power the record-breaking summit.

it. Neil, I can't believe it, but they actually went and did it. They did it. And the implications are actually huge for the mountaineering community in Nepal. So what if now you can go up Everest without having to chill at base camp or in Kathmandu for a long time, getting used to the altitude? That is a huge moneymaker for Nepal and its tourism industry. What if you can do? What if you just inhale xenon in Europe and then just travel straight to base camp, go up four days, come back, and then then leave. You know, I think Nepal's tourism industry will have to grapple with this, especially if more people use this method because it was demonstrated to actually work, at least with these ex-military guys who are probably in a pretty good shape. The expedition leader

who led this and pioneered the use of xenon for climbing said, guys, this is actually overall net positive because we're spending less in carbon emissions. We are trashing the nature less because we're just spending less time on the mountain and Everest has had a huge overcrowding problem. So we'll see where this goes, but I don't think we even expected them to work and it did. It did work and I think I'm inhaling Xenon before tomorrow's podcast, see if it increases performance in the podcasting realm as well. That is not medical advice. It is a noble gas and you are very noble guy. All right, that is all the time we have. Thanks so much for starting your morning with us and have a wonderful Thursday. If you have any thoughts on the show,

send an email with questions, comments, or feedback to Morningbrewdaily at Morningbrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lou is our producer. Our associate producers are Olivia Graham and Olivia Lake. Scoop Sardaris is on audio. Hair and makeup is dreaming of being stealthy, wealthy. Devin Emery is our president and our show is a production of Morning Brew.

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