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Intel Gets $2B Lifeline from SoftBank & Best Buy Launches a Marketplace
00:19:37
What SoftBank's investment in Intel means and Best Buy gets into the marketplace game
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- [00:01]
Ann Berry
This episode is brought to you by State Farm. Checking off the boxes on your to do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone or using the award winning app, it's nice knowing you have help finding coverage that best fits your needs. Like a good neighbor, State Farm is there spacs are back. We bust the jargon and unpack why Best Buy's new marketplace Will consumers buy it? And intel gets the lifeline. Will the stock stay up for Tuesday, August 19th it's Brew Markets Daily and I'm Ann Berry. More market details to come. But first, what a time to be Intel CEO Lip Block Bhutan first, the chip maker's leader fended off calls for his resignation just five months into the job, and from none other than President Trump. The president called out alleged conflicts of interest with Chinese technology companies. Now that was followed by a huddle at the White House and rumors that the US Government wants to buy a chunk of intel shares. And then just last night, the giant Japanese tech conglomerate SoftBank announced a 2 billion dollar investment into the company, all in just the past 11 days. So how did we get here and why does it all matter? Well, before this whirlwind of news, intel shares had lost 60% of their value over the last year as the company failed to gain traction in the artificial intelligence chip market. That's despite receiving nearly $8 billion in federal funding under the Chips and Science act, the bipartisan law enacted in 2022 to boost domestic semiconductor capabilities and reduce reliance on foreign chip production. Now, intel has been using those funds to expand into foundries or chip fabrication in Arizona and Ohio. But for all that building, customers haven't come and CEO Tan was brought in to clean up the mess. Let's listen to how he describes what he found.
- [02:04]
John
Unfortunately, the capacity investment we made over the last several years were well ahead of demand and were unwise and excessive. Our factory footprint has become needlessly fragmented.
- [02:19]
Ann Berry
Intel's chips have been plagued by quality problems. And as of Q2 this year, the company reported a feeble $53 million in external foundry revenue so far. Plus, and this is the real problem. No, no, quote, significant contracts secured. So let's go back to SoftBank, famed for a myriad of investments from Alibaba to Doordash, the conglomerate that has assets of about $300 billion has had its own issues following high profile losses in the likes of WeWork, which went bankrupt But Softbank has recently been getting its groove back, just posting its highest profit in four years and getting lots of attention for the sheer scale of its money in AI. SoftBank owns the majority of ARM, the semiconductor company with a nearly $150 billion market cap. It's also a leader in the Stargate project, a joint venture to build a US network of next gen AI data centers in which SoftBank's partners are Oracle and OpenAI, the ChatGPT maker in which, by the way, software Softbank's led several funding rounds. So if anyone has the contacts and the clout to get desperately needed new customers to intel, it's SoftBank. And that's why intel shares are soaring. And as for the rumors of the US government buying a 10% stake too, well, reports in the Wall Street Journal suggest that some of the CHIPS act funding provided to intel, and possibly more, could be converted from simple cash grants into actual equity ownership, which would make the US the company's single biggest shareholder if it happens. Now, we don't know yet for sure if the specific idea for intel has gained traction, but we're absolutely going to be watching. And here's why. It's another sign that in a policy shift for the U.S. the Trump administration clearly isn't shy about putting government cash into the shares of nationally strategic public companies. Recall, the Pentagon became the biggest shareholder in rare earth miner MP Materials with a $400 million investment just last month, and shares of that company is up 360% year to date as a result. Intel meanwhile up nearly 15% over the past five days. And we're going to keep watching now. If you're thinking about where to put your cash, check out Public, the sponsor of Brew Markets Daily. And before the show today, our producer John mentioned a feature he recently found.
- [04:29]
John
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- [04:41]
Ann Berry
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- [05:13]
John
Brewmarkets paid for by Public Investing. Full disclosures in Podcast Description let's turn.
- [05:19]
Ann Berry
Now to what's fashionable in retail, and that's marketplaces. It's impossible to talk about marketplaces without thinking of the OG Amazon, but other retailers are now jumping in, especially ones that started life with real world stores. Big box electronics chain Best Buy announced today that it's launched a new digital marketplace. So if you go to the Best Buy website or app, you'll see that you can now buy products from third party sellers.
- [05:43]
John
The company says this will double the number of items available on their site, adding entirely new brand categories such as furniture to go around a big screen tv. You couldn't get that before.
- [05:53]
Ann Berry
Now. Best Buy is not alone in this marketplace strategy. Lowe's and Nordstrom launched third party marketplaces last year, while Ulta Beauty will launch one soon. Of course, these companies are looking to expand their offerings quickly to get more revenue in. But there's another reason for this move and that's the outcome. Advertising opportunity. Third party sellers can buy ads that give their products better placement in search results. And one of the reasons I'm obsessed with Walmart is the brains in Bentonville figured out how to print money with this advertising revenue model.
- [06:22]
John
Also, this way it works is that the third party ships the product to you and Best Buy takes a cut without having to worry about sourcing or keeping the product in inventory.
- [06:30]
Ann Berry
Right? And you also not only get more choice, but watch Best Buy with the fact that it doesn't have to use cash. And cash is queen fulfilling your order with very little inconvenience to itself.
- [06:41]
John
Yes, but Ann, I'm conflicted. Doesn't this put all those brands at risk? I trust Nordstrom. I grew up with that brand. And why would I go to their marketplace to buy a third party item I could probably just find on Amazon?
- [06:51]
Ann Berry
Well, one of the concerns here is that perhaps that third party seller doesn't come up to the standard that you've come to expect from the retailer itself. So here's what Best Buy's done. It claims that it's vetted third party sellers and selected those who can provide only a high quality customer experience. Now we've seen with Amazon one issue that the giant's had itself is inconsistent service, meaning busted packaging or damaged product.
- [07:12]
John
Or I've had so many bad experiences with third party marketplaces I'd order a T shirt and it arrives it's in a regular version or it smells like it's been in moldy storage.
- [07:21]
Ann Berry
I'd like to note that John's shirt right now does not smell like it's been in moldy storage. Nevertheless, shares in Best Buy, despite John's cynicism, up 3% today on the news, but remain down over 13% year to date. We'll be watching for their earnings coming out later this month. John, we have a question from the audience. That's right.
- [07:38]
John
We heard from Leonard in Atlanta and he wrote. Ann, I heard today that SPACs are back with one focused on American exceptionalism. What's the fuss about?
- [07:46]
Ann Berry
Yes, that four letter word has been creeping its way back into financial news lately. Some big names are bringing SPACs to the market. We'll come back to who it is exactly a little bit later. Overall, a lot of us are getting deja vu. SPAC stands for sp Special Purchase Acquisition Company. That's S, P, A C. Just to frame the answer to your question, Leonard, it's worth breaking down what one is. A SPAC has no commercial operations. It's essentially a shell entity that goes public, puts the cash raised from the IPO into a trust, and at some point over the next two years, sometimes longer, but the timeline is specified. The SPAC uses that cash to buy a company with actual operations, usually one that's private.
- [08:28]
John
And if there are no commercial operations when the SPAC goes public, then what are shareholders buying into to start?
- [08:34]
Ann Berry
Well, SPACs have typically been formed by experienced executive teams or investors. So the idea is that as a public shareholder, you're trusting their judgment and ability to find a great company to buy. If no acquisition is made on time, by the way, the SPAC is liquidated and the funds are actually returned to the investors.
- [08:50]
John
I know a lot of us became aware of SPACs about five years ago. Their formation hit a peak in 2021.
- [08:55]
Ann Berry
Yes, and it wasn't just because of the sheer scale of money going into them. Basically, that was over $150 billion that year alone. It was the visibility brought by celebrities ranging from Martha Stewart to Peyton Manning joining SPAC teams. Now, awareness of SPACs, unfortunately was later raised again from some high profile failures. WeWork and Virgin Orbit, for example, both went public via SPAC in 2021 and filed for bankruptcy somewhere between 18 to 24 months later.
- [09:24]
John
Remember the electric vehicle company Nikola? It went public via SPAC in March 2020 and the CEO was sentenced for fraud. Three and a Nikola Tesla. Yeah, well, Nikola Nikolai.
- [09:37]
Ann Berry
Right. Well, SPAC's got a reputation for buying lower quality companies that just weren't ready to be public, possibly motivated by special shares that went to SPAC founders and not to normal shareholders. This perception wasn't always fair, but regulators did move to tighten up rules around SPAC deals and they faded. And so, Leonard, back to your question. What's all the fuss about? While parts of the market are concerned that memories are too short and that we've forgotten some tough lessons from the last SPAC boom, interest rates were low back then, favoring tech companies and others pursuing growth even while burning cash at unsustainable rates. Hence some of those bankruptcies. And here we are today, with the market expecting interest rate cuts, the tech sector at valuations that are incredibly high, and yes, famous people fronting SPACs again. As for the American exceptionalism SPAC you mentioned up top, well, venture capitalist Chamath Paliapatti just filed to list a $250 million SPAC with that name on the New York Stock Exchange.
- [10:33]
John
And this isn't his first time around. One of his prior SPACs paved the way for Open Door Technologies to go public. Another for SoFi, up over 80% since, and a third for Clover Health Investments, a health care technology firm whose stock has since dropped over 70%. He's had both wins and losses.
- [10:49]
Ann Berry
I also just want to read something from Chamath. SPAC filing with the SEC this time I went to go find it now. He got a lot of flack for sell shares and making money where retail investors sometimes didn't. That was last go around. So here is what he says this time. Quote, we believe that this investment is most suitable for institutional investors and retail investors should approach with caution if at all. He goes on to say that if retail investors go on to lose their entire capital, they will embody the adage from President Trump that there can be, quote, no crying in the casino. So he's saying retail investors, if you come in this time, you do it. We with your own risk caveat emptor. When we come back, one restaurant investor is not happy. Is your favorite chain the one getting his letters? Eczema isn't always obvious, but it's real. And so is the relief from Ebglis. After an initial dosing phase, about 4 in 10 people taking EVGLIS achieved itch relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing.
- [11:56]
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- [12:30]
Ann Berry
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- [12:38]
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- [13:10]
Ann Berry
Welcome back to BrewMarkets Daily. Well, there's been a lot of concern over the fast casual dining space lately. There's been one bright spot in Chili's, which just posted a nearly 20% jump in same store sales. But for healthy food darlings like Kava and Sweetgreen, their recent results have been far from healthy. Kava's stock hit a 52 week low last week and Sweetgreen shares were down nearly 25% after reporting negative same store sales for the second quarter. Both have suffered from consumers cutting back spend on food outside the home. Then there's Dine Brands, which operates the IHOP and Applebee's chains, its share price down 25% year to date, a fact that has not been lost on one activist investor. He's not buying that it's all about strained consumer budgets or food inflation or anything other than internal missteps.
- [13:55]
John
And Barron's this week reported that the Edge Consulting Group says they've taken about a 1% stake in Dine and written to the board of directors to demand A change in how the company spends its money.
- [14:04]
Ann Berry
Well, we reached out to the Edge team for a copy of that letter and we actually have it here.
- [14:10]
John
Here's what it says. Quote, this is not a casual dining problem. It is a leadership, execution and capital allocation problem. And that without urgent structural change, Applebee is IHOP will continue down the same path as TGI Fridays, which by the way, last November filed for bankruptcy.
- [14:26]
Ann Berry
The letter goes on to list some specific demands for changes in operations, including simplifying menus to increase profit margins and to increase speed of service and also measuring efficiency in stores.
- [14:36]
John
And there's one more that caught my eye and asked to, quote, install TurboChef ovens to improve prep times and food consistency, which is something that Chili's did as part of its turnaround.
- [14:46]
Ann Berry
I love that. There's also one more thing that caught my eye because we often talk about capital allocation which is on this show, and to just cut through what that means, we can use this as a great specific example of how that is considered. The Edge group demands that Dine brand stops, yes, stops paying out its 30 million dollar annual dividend to shareholders and instead wants the company to use that cash to quote, fund modernization.
- [15:09]
John
It's the age old question when it comes to dividends. Should a company use cash flow to pay down debt? Dine has about $500 million of it and reinvest in the business or send cash back to the shareholders?
- [15:19]
Ann Berry
Well, Dine missed on earnings expectations earlier this month. And while there are some positive aspects like Applebee's domestic same restaurant store sales growth hitting nearly 5% year over year, IHOP faced decline. So this activist is saying, don't pay me, don't give me my dividend. Invest the money back in fixing your growth instead.
- [15:37]
John
And what I'm saying is there's something wrong when you can't make a profit off of pancakes.
- [15:42]
Ann Berry
Shares of Dine up very slightly today. Well, it's 4:00pm on the east coast, the markets have closed and we don't have a ticker tape machine. So let's throw it over instead to our human ticker, our producer John.
- [15:54]
John
That's right, the S and P closed down 6.10of a percent today. The NASDAQ finished 1 1/2% lower and while the Dow touched an all time high, it pulled back and ended the day flat.
- [16:05]
Ann Berry
So what is the reason for the jitters? Well, it's concerns about inflation. That's my read on this. This is a big week for retailers releasing their earnings and for the market to be able to listen closely to what it has to say about passing on tariff costs to consumers.
- [16:20]
John
We did hear from Home Depot this morning. Back in May, the company said it did not expect to increase prices as a result of tariffs today. It said instead that some price movement.
- [16:29]
Ann Berry
Will be needed with targets out tomorrow, then Wal Mart on Thursday. There's a lot of new information that Federal Reserve Chair Jay Powell will have to process really quickly because his much awaited speech on Friday is looming when he'll discuss the state of inflation, his comments will impact the market's expectation of a rate cut and final thought Drumroll please.
- [16:51]
John
Is an AI bubble narrative taking hold?
- [16:53]
Ann Berry
I really. I really can't do that. Profit taking did hit some of the hottest AI stocks on the market today. OpenAI CEO Sam Altman reportedly stated that he fears that we're in an AI bubble. So that news did reach the markets and we saw the effect, particularly on the Nasdaq as a result. Palantir notably also down 9% today. We did read a note from Citroen Research that's gone somewhat viral, certainly made the rounds on X, and it says that Palantir's price quote reflect success beyond its fundamentals. Better news elsewhere in security today though, with Palo Alto Networks popping 4% after a strong earnings report, raising its guidance and touting big revenue gains in its next gen security offerings and from its $25 billion purchase of CyberArk. We'll keep watching. That's it folks. That's all for today's brew markets Daily.
- [17:41]
John
Brew Markets Daily is hosted by Anne Barry and produced by Jacques Crateau, Tariq Abdelatif and Emily Miliron. Our Technical director is Uchena Waugu and the president of Morning Brew Inc. Is Devin Em. If you'd like to get in touch, send an email or Voice memo to brewmarketshoworningbrew.com Wake up tomorrow with the Morning.
- [17:57]
Ann Berry
Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow. Same time, same place, SA.