Apple Just Got a Warning About Chinese Chips

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zayd Admani and today is Monday, August 17th. In today's episode, we'll break down why the stock market is being weirdly calm despite weak consumer data. We'll also tell you why the Trump administration is warning Apple not to buy memory chips from China and why Meta could be facing one of its biggest legal threats in its history. Then stick around to the end of the show to find out how much someone just paid for the first ever Ferrari Luce. We got a great show for you today. Let's go. The stock market is coming off its third winning week in a row. The S&P 500 was up 0.4% last week, while the Nasdaq squeezed out a 0.2% gain. What I find surprising is how calm things have been in the markets. July was such a roller coaster, but August so far has been kind of quiet. We haven't seen any major moves. In fact, the VIX, which measures the market volatility, fell to 14.25 last week, the lowest level since December. The market has been chill despite all the uncertainty around the health of the economy, not to mention the war in the Middle East. We got the July retail sales report on Friday, and the numbers weren't great. Sales fell 0.6% in July, while economists were expecting a slight increase in sales. Consumer sentiment also dropped for the month. And then we have the Iran situation. There seems to be no signs of improvement there, yet oil is still trading in the $80 range, despite the Strait of Hormuz essentially being closed. Now, one reason that might be happening is that many ships are still making the journey to the Strait of Hormuz, but just in secret. Bloomberg reported that millions of barrels a day are quietly making the move through Hormuz on ships with their tracking systems turned off and then transferring that oil onto larger tankers outside the Strait. You combine that with pipelines to alternative routes and stockpiles being released, along with weaker demand, that's kept oil prices in check. But yeah, when you zoom out, it is pretty crazy to think about that we have weak retail sales data, an active war, the world's most important oil checkpoint barely functioning, yet the VIX is near its lowest levels of the year. So either the market is very resilient or investors are just used to all this chaos. It's also possible that everyone's on vacation because I mean, it is August and volumes are lower than usual. Now, looking ahead, this week is relatively light on economic data. We are getting earnings from Home Depot, Target and Walmart, so that should tell us more about the health of the consumer. We'll be staying on top of all that, along with everything else happening in the market. So definitely get subscribed to the podcast and tune in every day to stay in the loop. Let's run through some headlines, starting with Apple. The Trump administration is telling Apple not to buy memory chips from China. Remember, a few weeks ago, Apple raised prices on their products and they blamed the rising costs of memory for the reason. Memory these days is facing a global shortage because of all the supply being bought up by A.I. data centers. So Apple was getting squeezed for memory they need for their Macs, iPads and iPhones. So then Apple started looking for alternatives, including Chinese chip makers, CXMT and YMTC. According to the Wall Street Journal, Apple has been testing those memory chips and could potentially use them in devices sold in China. But then Commerce Secretary Howard Ludnick over the weekend said the administration has told Apple very clearly that it does not want a major American company relying on Chinese memory. Now, this isn't an outright ban. Apple can still legally buy off the shelf Chinese memory chips, so they could ultimately ignore the administration and move forward anyways. But this is a very interesting clash right now between industrial policy and economics. The U.S. government doesn't want Apple relying on Chinese companies, but at the same time, Apple is going to have to raise prices because there isn't enough memory right now. Apple doesn't want to pay the higher prices from Micron, Samsung and SK Hynix. So for now, this is a big win for Micron. You know, Micron has been lobbying the administration to keep Apple away from the Chinese suppliers, arguing that allowing companies like CXMT into Apple's supply chain would hurt U.S. chip manufacturing. Micron shares are up around 3 percent this morning. So we'll see what Apple decides to do here. I mean, the timing here is also pretty funny because Howard Ludnick made those comments right after touring a brand new Apple manufacturing facility here in my hometown of Houston, Texas, alongside Tim Cook. You know, Apple and Foxconn just opened a new 170,000 square feet manufacturing space like 45 minutes from where I live. And this factory will start assembling Mac minis later this year. Apple is also opening a manufacturing school at this facility where they're going to train American workers and smaller manufacturers. So Apple is trying to stay on the good side of the Trump administration by moving some of their production back to the U.S., but the reality is the majority of Apple's supply chain is still in Asia. And that's why I wouldn't be shocked if Apple ultimately uses one of these Chinese memory companies anyways, especially for the products sold in China and other parts of the world. And I wonder if part of the strategy for Apple here is just leverage. You know, if Micron, Samsung and SK Hynix know that Apple has CXMT waiting in the wings, Apple has a much stronger hand when it comes time to negotiate memory prices. So yeah, we'll see what happens. Let me know in the comments on what you guys think. Let's shift gears and talk about Meta. Meta is facing what some people call social media's big tobacco moment. Opening arguments start tomorrow in a massive trial involving a coalition of 29 state attorney generals who accuse Meta of deliberately designing Facebook and Instagram to be addictive to children and teenagers. At the same time, they say the company is misleading the public about the risk of social media and the potential financial damages here are absolutely crazy. Meta's lawyers have said damages could theoretically reach as high as $1.4 trillion. The thing is, the states aren't just asking for money. They're also asking the court to force Meta to change the way Instagram and Facebook actually work. The states want Meta to remove features like infinite scroll and autoplay and beauty filters, basically all the things that make Instagram what it is today. And I think that is what investors will be watching in this case. You know, Meta can afford a huge fine, but if the courts start messing with the algorithms and engagement features that keep people scrolling, that could have a meaningful impact on Meta's business because Meta makes money by serving ads as people scroll. And the more time people spend scrolling, the more money Meta makes. In fact, roughly 98% of Meta's revenues come from advertising. And all of this is going to have an impact on Meta's AI ambitions as well, because Zuck needs that cash machine from his existing business to spend on AI. Meta is planning to spend over $140 billion in AI this year alone. So ironically, one of the biggest risks that Meta's AI ambitions face right now has nothing to do with whether their AI models are any good. It might be this lawsuit about how addictive Instagram is. So we'll see what ends up happening. Meta is fighting back by saying that they have introduced protections for younger users, including break reminders and daily time limits. On top of that, there are some critics of the lawsuit arguing that these are complicated social problems that shouldn't necessarily be solved by asking one company to write a gigantic check. So let me know what you guys think about the whole thing. Honestly, it doesn't seem like the market is too worried about this as of yet. But if the courts do rule against in Meta's favor, that could be a bad day for the stock. Let's talk about some stocks making moves today. Sandisk shares keep ripping higher as the memory trade heats up again. Sandisk stock was already on a five-day winning streak heading into this morning. It was up 35% over that stretch and shares are up another 8% this morning. Now, just like with Micron, Sandisk is getting a boost from the Trump administration pushing Apple not to buy memory chips from China. On top of that, Sandisk also gave investors a very bullish long-term outlook at their investor day last week. Now, the stock is still down more than 25% from its all-time highs, but it's quickly making its way back up. Now, on the flip side, shares of the defense contractor L3Harris are dropping after abruptly firing their chairman and CEO. Christopher Kubasik was fired this morning after an investigation into an alleged code of conduct violation. The company didn't say what the violation was, but they made it clear it had nothing to do with financials or operation or customer relationships. Shares of L3Harris are down around 3% this morning as a result. What's crazy here is that this is the second time that Kubasik has been fired from a major defense contractor for a conduct issue. Back in 2012, Lockheed Martin removed him right before he was about to take the CEO job for what they called a lengthy close personal relationship with a subordinate. I was trying to end this segment with a joke, but I think I'm going to play it safe this time. Let's wrap the show with a fun fact. Ferrari's first-ever electric car, the Ferrari Luce, just sold for $40 million, making it the most expensive new car ever sold at auction. By the way, the previous record was $26 million, which was also a Ferrari, so this one just crushed it. Now, if you guys remember, when the Ferrari Luce was revealed a few months ago, it instantly became a laughingstock online because it looks like a Toyota Prius with a body kit on it, but apparently one billionaire out there disagreed with the haters. Now, the starting price for the Ferrari Luce is around $640,000, but this was the very first production Luce, and it was customized through Ferrari's tailor-made program and auctioned off for charity at the Monterey Car Week, which is why it got a $40 million bid. Now, we don't know who the buyer is, but here's my wild theory that I'll throw out there. I think there's a chance that OpenAI CEO Sam Altman bought this car. Sam Altman is a big-time supercar guy. He owns a McLaren F1, which is worth something like $20 million. Remember, the Ferrari Luce was designed by Johnny Ive, the legendary formal Apple designer, who now works closely with OpenAI on their next hardware device. So, I'm just connecting the dots here. I wouldn't be surprised if it turns out that Sam Altman bought the very first Ferrari Luce. By the way, Ferrari's stock is now up 30% since bottoming out back in May following the Luce reveal. So, I gotta say, Ferrari's having a nice bounce back. Not only are their sales up, but their F1 team has a shot of winning the championship as well. So, shout out to everyone that bought the Ferrari Dip earlier this year. Well, all right, guys. That's the rundown for today. Hope you guys enjoyed today's episode. By the way, the entire Advanti household has been sick for the past few days, including my kids, my wife, and me. So, if I sound a bit different today, that's the reason why. So, hopefully, I get back to sounding normal pretty soon. By the way, if you guys enjoyed today's episode, consider giving us a five-star rating wherever you listen to your podcasts. You know, all that engagement really does help us out, and it helps other people find the show. Thank you guys so much for listening, watching, and commenting. Shout out to Mike and V for all the work behind the scenes. And we'll see you guys back here tomorrow.