🤯 Apple Releases iPhone AI Preview

MARKET UPDATE

Good Morning Investor! On Monday, shares of advanced medical device maker Koninklijke Philips NV ($PHIA) surged over 14% after the firm delivered a beat on its profit estimates, helped by cost saving initiatives, including layoffs. Meanwhile, in the land of silicon, shares of ON Semiconductor ($ON) rallied 13% thanks to reporting robust earnings results in the second quarter.

TODAY’S BIG HEADLINES

Apple Releases iPhone AI Preview

Vanguard’s Dirty Little Tax Secret

McDonald’s is Cannabilizing its Own Business

ARTIFICIAL INTELLIGENCE

Apple Releases iPhone AI Preview 🤯

When Fruit Becomes Smarter: Earlier this week, iPhone maker Apple ($AAPL) finally gave us a taste of their new digital delicacy - Apple Intelligence (or as some might call it, the iThink). This new AI software was released for developers in a beta version of iOS 18.1, proving that sometimes, the apple doesn't fall far from the tech tree. For now, it's only available to registered Apple developers who pay $99 per year - a small price to pay for a bite of this forbidden fruit.

• The first version of Apple Intelligence currently boasts a suite of features including improvements to Siri, automatically generating emails and images, and sorting notifications.

The Garden of Eden Has a Waitlist: The caveat? Getting access to this new AI suite isn't quite so simple. Users will have to register for a waitlist inside Apple's settings app after updating to gain access to the service. Meanwhile, European users will simply have to wait on the sidelines after the tech titan announced it won't be releasing its Apple Intelligence in the Eurozone due to its strict regulatory environment. Looks like the EU will have to stick to their non-intelligent apples for now.

• Apple Intelligence is due to be released to the public later in the year. However, the iOS version number 18.1 has led many to speculate that this new software likely won't be released alongside new iPhone hardware, which is set to be sold with iOS 18 at launch.

Polishing the Apple: There's a lot of optimism baked into the potential for a massive upgrade cycle over the coming couple of years for Apple, given the pent-up demand for their new AI software. The importance of this being a seamless launch cannot be understated (learning from Google's horrendous releases earlier this year, which were about as smooth as a porcupine in a balloon factory).

PATENTS & TAXATION

Vanguard’s Dirty Little Tax Secret🤫

When Tax Loopholes Get Plugged: Vanguard, one of the world's largest asset managers, has held a massive advantage over its rivals for decades in the form of a patent that allowed its customers to earn billions of dollars in the markets while paying next to nothing in taxes. It's like they found a financial fountain of youth, but instead of eternal life, it granted eternal wealth (or at least until the taxman cometh). Those rights expired last year, and now the rest of the industry is going pedal to the metal to catch up, like a group of senior citizens suddenly realizing the early bird special is about to end.

• Vanguard disrupted the investing world nearly 50 years ago by launching the first index fund for individual investors.

Turning Lead into Gold: Investors will do anything they can to avoid paying the dreaded capital gains tax on their profits, and Vanguard has been providing a clever solution. An ETF share class which threatens to upend the $28 trillion fund industry. Vanguard's ability to construct exchange-traded fund share classes of its existing mutual funds over the past two decades has not only generated $191 billion in gains for investors as of 2019, but it's also paid a jaw-dropping tax bill of $0. It's like they found a way to have their cake, eat it too, and avoid the calories!

• Since the expiration of Vanguard's patent in question, Charles Schwab, Morgan Stanley, Fidelity, and roughly a dozen other companies have filed applications with the Securities and Exchange Commission to copy the structure.

• The question is whether or not the SEC will approve these applications, given the potential loss of hundreds of billions in tax revenue. The projected tax revenue, at a common 23.5% tax rate, topped approximately $50 billion for 2020 alone. That's enough to make even Uncle Sam break out in a cold sweat!

Financial Alchemy at Its Finest: How are ETFs able to bypass taxes while mutual funds aren't? Well, instead of buying and selling underlying securities, ETFs use a creation and redemption mechanism that adds or subtracts shares of certain stocks as needed. That means shares don't necessarily have to be bought or sold, and don't trigger capital gains — unlike mutual funds that report annual gains each year. It's like playing musical chairs, but instead of removing chairs, you're removing taxes! An additional consideration to make is that if ETFs are held until the investor's passing, the funds can be transferred to their heirs without realizing any capital gains taxes, much like other securities. It's the ultimate "take it with you when you go" strategy.

FAST-FOOD RESTAURANTS

McDonald’s is Cannibalizing its Own Business🍔

When Golden Arches Turn into Frown Lines: If you briefly glanced at McDonald's ($MCD) stock yesterday being up almost 4%, you might've thought their earnings report was as satisfying as finding an extra nugget in your 10-piece. Alas, this financial Happy Meal was more of a Sad Meal.

The Quarter Pounder with Cheese Slides: McDonald's reported more of the same for the second quarter, serving up the first decline in sales on an annualized basis since 2020, along with a 12% drop in profits. Apparently, cost-conscious families are opting to eat at home, leaving Ronald McDonald to dine alone. Here's the rundown of the report:

• Revenue was $6.49 billion for the quarter versus the expected $6.63 billion, representing a 0.12% decline year-on-year.

• Adjusted earnings per share of $2.97 missed expectations of $3.07. Looks like the only thing supersized this quarter was investor disappointment.

• Same-store sales growth was also a miss, contracting by -1.0% versus the expected +0.84%.

• Operating income for the quarter declined 6% to $2.92 billion, with an operating margin of 44.99%, down from 47.8% year-over-year. Additionally, total operating costs and expenses increased 5% to $3.57 billion.

When You're Lovin' It... Less: One positive that can be taken away from the earnings call was management's optimism, with them guiding towards an operating margin for the full fiscal year in the mid-to-high 40% range. This drastic shift in consumer spending has made McDonald's so desperate that they're now potentially cannibalizing their own business model.

• The burger-flipping king launched a $5 meal deal in June with the ambition of driving sales from their penny-pinching customers. This meal deal is now being extended for a second time into August in an effort to get sales growth back on track, but at the risk of lowering total sales as other customers opt in for the cheaper deal too. It's like offering a discount on ice cream and wondering why your milkshake sales are down - brain freeze, anyone?

MORE NEWS

Additional market-moving events🌎

Blockbuster at Marvel: In a rare win for Disney ($DIS), Marvel’s new "Deadpool & Wolverine" blockbuster film broke the R-rated movie debut record, earning $205 million domestically and $438.3 million globally to become the 8th biggest opening ever. (AP)

Gambling or Investing?: Apollo agreed to buy International Game Technology's gaming division and gambling machines firm Everi in a $6.3B cash deal. (Bloomberg)

Profitable Manipulation: Famed short-seller Andrew Left faces more than a dozen criminal fraud charges alleging that, for years, he manipulated stock prices and lied to investors about his positions. (Axios)

Return of the SPAC: Funding surge for blank cheque companies points to Spac bounceback. (Financial Times)

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection.

Here’s how the stocks have performed since:

• Hims & Hers Health: $21.71 (📈+50.03%)

• PayPal: $58.94 (📉-2.80%)

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