Motley Fool Hidden Gems Investing - Apple Shows Intelligence, Fed Signals Caution

Episode Date: June 14, 2024

Apple arrives on the scene with its AI debut Apple Intelligence, we check in on who is winning the artificial intelligence arms race and whether we’ll actually see a Fed rate cut in 2024 . (00:21) Jason Moser and Emily Flippen discuss: - Apple’s entrance to the world of AI, the details of Apple Intelligence and the OpenAI partnership. . -Tesla shareholders approving Elon Musk’s 2018 pay package and plans to move to Texas, and what’s next for the largest executive compensation plan of all time. - The Fed’s plan to hold steady on rates, and Adobe’s stellar quarter. (19:11) Trex CEO Bryan Fairbanks talks through the state of outdoor decking and the company’s plans to grow by replacing the average wood deck. (34:12) Jason and Emily break down two stocks on their radar: Autodesk and Green Thumb Industries. Stocks discussed: AAPL, MSFT, TSLA, ADBE, ADSK, GTBIF Host: Dylan Lewis Guests: Jason Moser, Emily Flippen Engineers: Tim Sparks, Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me in the studio, Motley Fool senior analysts, Emily Flippen and Jason Moser. Fools, great to have you both here. Happy to be here.

Hey, good to be here. We've got the details on the biggest pay package in history, an early summer check-in on the state of the decking market, and of course, stocks on our radar. We are going to be kicking off this week, though, with a rundown on the world of AI. Jason, we've been waiting a while, but we finally have a glimpse into Apple's AI ambitions. They unveiled some of their efforts at their Worldwide Developers Conference this week. What did you see? It feels like there was a lot of emoji stuff, I guess.

We're in this period of discovery, right? We're learning, not just with Apple, but with AI in general, learning what all of this stuff can do, what is going to be most helpful versus what is more noise. Apple was, I guess some might say, a little late to the table. But that is done by intention, right? Tim Cook has said it before, and he said it again, I think, this week. He says, our objective is never to be first, our objective is to be best. They're not in a hurry, but they're looking to do it their way. It seems like this is an interesting first step. I'm not sure how y'all felt, and I'd be interested to get your opinion on this. I know this was an important step for Apple. I do get that.

It definitely felt like one of those incremental phone updates, right? Better camera, longer battery life. I wasn't overwhelmed. But by the same token, like I said, I know it's an important step, and it's just the first step. Digging into some of the stuff that they unveiled, we had Genmoji, as you were alluding to, the degenerative AI application for emojis. A lot of gen AI and image stuff, image playground, another one, image wand, all of these things generating images based on inputs like sketches or text inputs from users. One of the things that I think was more interesting and a little bit more practical, Emily, as I was looking out at some of the things that they unveiled, was the Apple intelligence demo. This is their AI for the rest of us. Their assistance

on email writing, things that seem to play a little bit more into how people use their phones and communicate. That seems like the most interesting part. But what jumped out to you? Yeah, I love that. AI for the rest of us is a perfect way to describe it. It was extremely practical. I will say, heading into this developer conference, I was incredibly skeptical. Apple is late to the AI game. And so, coming into this, I think expectations were incredibly high. We have all of these other big tech giants who have been launching these really, really big ambitions in terms of how they're going to change the world as it comes to artificial intelligence. And I think expectations were coming out. What is Apple going to do, right? What are they going to say? How are

they going to change our lives? And they really didn't change our lives, right? But they did do these little tiny incremental things to make our lives just a little bit easier. And interestingly enough, I actually think this could be great for them because ultimately, they're not an AI business. They're a hardware business. They want you to upgrade your cell phone. And these little small changes, summarizing your text messages, these little things that will get you to upgrade your phone. I actually think they did a good job of selling people on that. I came out of this developer conference pleasantly surprised, especially considering expectations were high coming into it. A very big part of how Apple seems to want users to interact with AI is within the

context of what the phone knows about you, your contacts, your messages. They are bringing Apple intelligence into Siri as well. One of the interesting pieces of this, Jason, is not only is there Apple intelligence, which I believe is homegrown in their own system, they are also partnering up with OpenAI's ChatGPT and will source to that and will disclose that to the user when they feel like they will be getting a better result that way. Interestingly enough, Apple users will not have to pay for ChatGPT. I look at this partnership and I say, this is pretty interesting. Apple's saying there's someone strong in this space. OpenAI may be getting some distribution here from all these Apple users.

Yeah, it sounds like not really any money changing hands for this, but it's absolutely a great opportunity for OpenAI, just from a distribution perspective. The first thing it made me think of was just sort of this idea that content creators would accept less money to produce a show on Netflix because they knew it was going out to the biggest audience, because Netflix has so many subscribers. This could be one of those things here. OpenAI is saying, listen, we'll take a little bit on the front end there and not have to worry so much about that short-term profitability if it's going to get us into all of these devices. We're talking about hundreds and hundreds of millions of iPhones. I think Emily's right. This is going to

be an opportunity for them to really convince us that we need to upgrade our phones. I think a lot of people have gotten tired with the, oh, it's just a little bit of a better battery and maybe the cameras a little bit better, but is that a reason for me to upgrade? A lot of people are starting to say, no, this stuff could change that, because ultimately, this is what Apple does. They figure out ways to make your phone more yours, more personal. And if they can utilize these AI tools to do that even more, then it becomes a more compelling case for sure. To your point, Jason, this AI system will be available on the iPhone 15 Pro, as well as the iPads and Macs with M1 chips and later. I think 90% of the existing iPhones out

there would not qualify for these upgrades. So, they are providing a reason for people to upgrade. Having software fuel a little bit of the hardware story, Emily, I do think this is an interesting opportunity for us to check in on OpenAI, because this is a company that we've seen so many headlines about. Generally, we've been interacting directly with ChatGPT. Interesting to see their software going out and being more widely distributed. This is not the only news, though, about this company this week. We also had updates on their executive suite. They'll be bringing Sarah Fryer, formerly at Square, over as their CFO. What do you think of the state of OpenAI at this point? I actually think, in hindsight, this is a massive missed opportunity for OpenAI. The longer that

I've had to reflect on this deal, the more that I think the value is truly held in Apple's hands here, as opposed to open AIs. Despite the fact that they're bringing in, presumably, people who have a lot of experience, both with publicly traded companies, both with artificial intelligence, who have a lot of experience behind their belts, I will say, I think that this is great evidence, the fact that they did not get an exclusive deal with Apple, that Apple is still reportedly making partnerships with Google's Gemini, with Anthropic. They're bringing other systems to Apple for free. OpenAI is presumably not getting any money as part of this deal, but they're still going to be paying for the servers. For all the people who are going to be upgrading their iPhone,

who are going to be using their systems for free, they're still going to be paying for all that data. Hopefully, somebody does pay for OpenAI. They upgrade to their $20 a month subscription through their iPhone. Maybe at some point, Apple gets a cut of that. Ultimately, I think OpenAI really doesn't have a moat here. And that ultimately is the problem. Whereas Apple is just kind of getting all of this great software for free. And I don't know, I'm reflecting on this and I'm like, did Apple just beat everybody in AI by doing the absolute least? I like that you brought up the moat question because I've started to ask myself that as well. And it just, it struck me, we had a meeting, our CEO was closing it out the other day,

Tom Gardner, and he just started rattling off all of these different LLMs, all of these different sort of chatbot-type functions, it feels like it's become very commoditized, right? And then, so, it all boils down to, what's the easiest to use and what's the one that is going to hallucinate the least? Hopefully, getting out into that many devices will keep these things improving, and it will make sense more as time goes on. But yeah, when you think about OpenAI, not only are they not getting anything from this, they're still having to cut some serious checks to Microsoft just to keep their business open. It costs a lot of money to run that. I think I saw $700,000 a day just to keep that thing running. I mean,

that adds up. It is interesting that kind of regardless, Microsoft seems to win here and Apple seems to be doing okay. Now that we have Apple at the AI party, you can kind of check in on the different approaches here and some of the different things that the big tech companies have been doing. I know it's early days, Emily, but as you look out at the landscape and the AI race, is there anything that you think gives anyone an advantage here? I think there's two different approaches, right? We're seeing this approach from Apple, which is, I'm going to do the bare minimum in AI, which is going to say, what can I do to get consumers to do that hardware upgrade, improve their lives just a little bit, while just also

not doing the most? Well, I think Microsoft is out here saying, I'm going to do the most. Open AI, obviously, that entire business model. But Microsoft is making waves this week because they actually had to delay the launch of one of their newest AR products, the recall system, which is very controversial. You know, screenshots of your computer as you're using it. And there's a lot of privacy and security concerns. They are moving full force ahead. Some would say AI at any cost, right? But you have to appreciate the fact that they are moving full steam ahead in what many perceive to be the future of the technology world. And as what is one of the largest companies in the world, I can never keep track who's ahead of who at this point. I think

Apple surpassed them this week. You have to say to yourself, OK, what is going to be the winning model here? Is it the least or is it the most? Because Apple and Microsoft have taken two completely different approaches. You know, it's interesting on the wake of that Microsoft news, seeing Apple really lean into the privacy and security part of the conversation with the Worldwide Developer Conference announcements. All right. We're going to be back in a minute. Coming up after the break, we've got an update on Elon Musk's $50 billion pay package and a company that could be facing boom or bust with AI. Stay right here.

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I'm Dylan Lewis, joined here in studio by Motley Fool analysts, Emily Flippen and Jason Moser. A lot going on this week, including Tesla's annual meeting in Austin, Texas. a lot of different things for shareholders to weigh in on, a lot of proxy items. Chief among them, Elon Musk's 2018 compensation plan. Emily, quick history lesson here. Earlier this year, a Delaware judge struck down the $50 billion pay package after finding its approval process flawed. Shareholders had an opportunity to weigh in. It won't supersede the judge's opinion in Delaware, but overwhelmingly, we saw support for the package. Yeah, Musk went to the court

of public opinion this week, and he did win, which is impressive, considering there were a lot of large institutional shareholders who publicly spoke out against this plan. Of course, we don't know how people voted, but they did come out and say, hey, we think you should vote against this plan. That included the California State Teacher Retirement System, as well as the Norwegian Sovereign Wealth Fund, as well as top proxy advisor ISS. However, ultimately, retail investors,