Sozzi Unleashed (9:30–10:00 a.m. ET)

Well, we're about to have a day, friends. Uh, it's going to be one of those days of full-on blood bath in tech stocks. We're gonna hit it with the alarm. We're going to get it a little bit of a bear hibernation because it is brutal. It is brutal out there right now and my morning good to uh you know it's good to have a morning exchange my longtime friend Jim Kmer he actually hired me like over 10 years ago I used to work with Jim I always love conversing stocks with him and I put this Yahoo Finance Alphaspace I've been talking about Alphaspace all week long and drew up this chart from Alphaspace this morning looking at the percentage changes in the magnificent seven stocks versus their 52- week highs and they've all been torched. I'm calling this the unflattering seven, which Jim seemed to like. And if I was to work with Jim like I was 10 years ago this morning, he'd be getting there 6:45 a.m. Brown bag, coffee, bagel, him and I would be jamming out stocks. So, we're talking uh on X right now, keeping that conversation on what is going to be a challenging day for tech stocks. And you might be wondering, why is Apple and Microsoft why have they relatively outperformed? Very simple. Apple's not really viewed as an as an AI play. I may not be good for Apple looking at over the next 10 years, but at least for today, it's seen as a good thing. And number two, Microsoft. We all know why Microsoft came out this week. Didn't have negative free cash flow. Good quarter for Microsoft. So then there's that. And I quick fast follow before I get into all things tech because I got an interesting opening for you. Follow on this one. Yesterday you saw me review the uh Sour Patch Kids Wingstop wings. And I got a little they have a post. There we go. From the team at Wingstop. We're pretty bullish on those. And you know what? I'm bullish, too. I like the taste of them. I've been getting dragged on X and on Instagram for my take on those wings. Uh I liked them and yes, just because they're boneless to me, they're still wings. Sorry, not sorry. All right, let's get back on this route on tech stocks because it's going to be a rough day. It's going to be a rough day. And I look, don't blame Intel's weak guidance tied to a prolonged memory chip supply storage for the fresh route in tech stocks. Don't do it. You want to do it, don't do it. Blame the hyperscalers like Amazon, Alphabet, and Meta for not guiding Wall Street properly on how much they intended to spend this year and next on AI infrastructure. Blame those guys. The bills are coming in much larger than expected and Wall Street can't even stomach it. That's why you aren't seeing many heroes out there saying buy the dip right now. I'm not seeing them. They're under rocks. That's why Friday is shaping up to be another blood bath for tech stocks. I've been like I've been talking about since I came out of that shoot on the other side of this camera. Remember, it's cash flow that will be used to repay all the debt hyperscalers are poised to incur to support the robust AI infrastructure buildouts. The fact that cash flow is drying up because of a protracted period of spending is the bug causing the debt in stock markets to catch a cold. Kudos to Amazon for at least not bearing its free cash flow metric, the most important metric for tech at the moment at the bottom of its earnings release. It made it no less tough to stomach, though, but at least it was fine. and it was quickly easily findable, which I appreciated. Amazon's free cash flow decreased to an outflow of $42.4 billion for the trailing 12 months, driven primarily by a year-over-year increase of 94.8 billion in purchases of property and equipment. That would be capex. This increase primarily reflects investments in artificial intelligence. Or is it or is it SI? Well, it's AI day. Amazon said this compares to a free cash flow inflow of $14.8 billion for the trailing 12 months ended September 30th last year. Amazon CEO said he still thinks capex this year will come in this number is so huge. It's so huge. We'll come in at $220 billion and that next year will be even higher. So maybe maybe it's $300 billion. Well, whatever it is, it's it's huge. We haven't even seen numbers like this before. Amazon stock is getting nailed right now. Deservedly so. On Wednesday, Google posted negative free cash flow of $9.1 billion in the quarter versus a Wall Street estimate for a negative three and a half billion. Thursday saw more than $500 billion in market value wiped off Google. $500 billion. Goodbye. Poof. Gone. Meta dropped a bombshell on its third quarter results last week, posting negative free cash flow for the first time since 2012. Meta stock has continued to sell off post earnings. Pull up that chart on Alphaspace. It is awful. I'm not giving Intel a pass here. It's just that the tech selloff is rooted in hypers scale spending absurdity, not on people pushing back on higher computer prices like Intel talked about on its earnings release uh on its earnings call yesterday. And I want to keep this conversation going on Google because you don't lose $500 billion of market cap in a single day and totally forget about it. This is a very interesting moment in time for Google. And when it comes to Google, I went on to Alphaspace and I was just curious on what the PE ratio on Alphabet looks like after a really historic sell-off like that. What is this company trading at? Here's the chart. Shout out Alphaspace. I'm I'm in my head. Alphaspace is a human that I interact with every day. Here it is. Uh Alphabet's PE ratio hasn't been this low since about 2012. This is what happens when you come out and you surprise the markets like Alphabet did yesterday with it free cash flow and it's talk about how much more it's going to be spending over the next 12 months. This is what happens. You got PE compression at the same time as earnings estimates have fallen pretty uh swiftly over the past 12 hours, 18 hours, 20 hours since its earnings report came out. And I I have to say I don't think earnings estimates have bottomed on Alphabet. You have search slowing down. You got YouTube slowing down a touch and this is byproduct of all these things. Alphabet's P ratio coming down and if I bet if I went back and I just didn't have the time this morning. You look at the price to sales, price to book, price to Ebida, all the metrics on Alphabet are really starting to compress. For these for this PE ratio to start to come up, you need a couple things. One, you need the earnings estimates for Alphabet to go back up. And that is a hard I guess thing to predict after a quarter where I heard search slow down, YouTube slow down and profits under pressure or number two for this P ratio to start climbing back up. You need a belief or a hope or the street to buy into this notion that they're going to get a reaceleration in earnings for Alphabet at some point in the middle of next year. Or you get a sense too as well that Alphabet gets what the message the street sent it yesterday and it's going to cut back on capex. That's how you get this PE ratio going back up and to the right. I just don't think it's going to happen here uh in the near term. And that is my uh assessment of this one. And then I want to bring up another one. This was I was I was listening to this play out uh last night. Intel is getting absolutely slaughtered. Shout out to our man Jared Blickery. Uh he has been covering this Intel story. You can go to the Yahoo Finance homepage and check it out and uh read all of his great analysis. Shout out Jared. Big fan of long time of his work. Uh, Intel warning about memory chip shortages impacting demand for PCs because that is pushing up PC prices. Not a new story, but it did seem to get worse. Here's what Intel CEO Lip Lutans said on his earnings call. In recent weeks, our customers began signaling a PC slowdown based on the memory prices and availability. Year-to-date system endpoint prices have increased significantly placing additional pressure on already limited IT budgets. The pace of the PC correction has accelerate over the last two months as our OEM partners are aggressively managing inventory to match the softer sell through. We expect the current environment to persist until memory availability and prices begin to normalize. >> We know that units were down this year. uh they're going to be slightly down next year, you know, low single digits. Um I mean, these two calendar quarters right now are really the trough of the year-over-year compares where they're the most negative. And so, um you know, this is where we're feeling the biggest amount of change in that market on a unit basis, on a year-over-year basis. >> Two different earnings calls, two I think somewhat different takes. Sendis saying, "Hey, we have the chips for you. Knock on our door. We'll give you the chips." Uh, Intel's saying, "Well, maybe that's not necessarily the case." And when we do ask for chips from a company like a SanDisk, the prices for that are going to be up and we have to push that onto the consumer. Uh, my hot take here is you should have brought a new PC a year ago. So, that's that. I want to switch gears because I need a little bit of a pallet cleanse and I'll have more to say on this on my Sunday morning brief newsletter. I'm just I've had enough with AI. Like, there's only so much AI I can talk about. Only so much capex I can dive into. I want to talk about some food. And my man Tom Curtis, Burger King, uh, US president is here. Good. Good to see you. You're my pallet cleanse for today. >> We're gonna go from chips to nuggets. >> Yeah, we're gonna go from chips to nuggets. Good to see you. >> Good to see you as well. >> Last time you and I were uh talking, we were talking about a revamped Whopper, but today you bring me revamped. >> Either way, we're going to have our mouths full of food while we >> Yes. Is that the Is that even the right term? Is it revamped? Do you talk >> elevated? We use the term elevated. >> Elevate. Elevated. >> Doug, we're elevating everything that we do. So, >> I told you off I told you off camera I always liked the BK nuggets. What did you do to them? >> Uh, well, you're one of the few that love the BK nuggets because we we did a listening line uh for a while and we still do it today. Uh, but we got a lot of calls where people said, "Hey, we love the Whopper, but the nuggets need work. They're thin. They're dry. They're rubbery. So glad you loved them. >> Most of America did not like them, and it was time to make a big change, and this is what you get." I remember a little bit different nuggets from you last. They were like longer and they were spicy. >> Uh maybe they seemed longer, but I think they were actually thinner. >> And uh and the the uh the flavor profile of the coating is the same, but it is a crispier nugget. It's got a thicker, juicier meat. The marinade's a little bit different. The packaging is now more premium. It used to be just come in a bag. And probably most importantly to me is like the sauces are all different. >> It's a it's a sauce environment. >> It's a sauce world. And uh sometimes a nugget is a tasty spoon for a great sauce. And that's kind of the way that I look at it. So uh yeah, it's it's been uh it's been big. And this was part of our third quarter results was a 30% increase in nugget incidents and the reviews have been fantastic. So I um I I know uh you executive chairman Patrick Do a Wild when he was in in >> uh when he was over at uh Domino's and on the artist call you guys talked about you know him you your CEO Josh Koba were in the test kitchens like looking through the menu what can be improved like what else is hitting you when you go into these test kitchens what else could be elevated you think? Yeah, I think that we don't learn much in the test kitchen about what needs to be elevated. Once again, it's that direct interaction with the guest, which I think is what kind of has caught America's interest. Uh that's that's where we learn most of what we learn about where we need to improve. So, the Whopper, there were some nuance changes that people were asking for there. There's a really cu uh really loud call to action on the nuggets. Um but we're looking at other things as well. French fries, breakfast. >> What's wrong with your French fries? What's uh there's a lot of French fries are a very hot topic. Like people really want to talk about fries. It's the obvious pairing to a to a Whopper. And so some people like a thin fry, some people like a thick cut fry, >> you know. I could see you >> like what do I like? I just like the salt on it. >> Yeah. Yeah. >> And don't make them soggy. >> Yes. >> Which means they have to be fresh. You got to turn a lot of them very quickly. But I think that um it's a very passionate topic for consumers. So we'll do something with the fries. Not sure exactly what and when yet, but it takes a while to figure out all those. >> We've always innovated in fries. I remember what chicken I remember when chicken fries came out a couple years ago. >> Yes, chicken fries are a distinctive product of Burger King. Nobody else offers them. Those tend to be very popular on the menu and I think we can elevate elevate those as well. So, how and when we do that is how it all fits in. But what you'll see is a common theme of elevation in an environment where people are trying to figure out how to cut cost because the low-end consumer is struggling. You got gas prices, inflation, beef prices, all of these things are causing people to struggle and we kind of want to zigg when everybody else is zagging. And so far that's working out. >> I get that sense from you. And it's not like you are completely redoing items. It's like here's the iconic Whopper. Let's improve how it's the packaging looks. Let's improve an ingredient. This too, it still looks like the nugget. Just little improvements. Is that the secret? No pun intended. Is that the secret sauce here? Are we not completely overhauling iconic things on the menu? >> Yeah. Often times the best part of strategies is what you don't do. We knew we needed to overhaul the nugget itself. But when we went out there and tasted different coatings on the nugget, you can coat a nugget in three or four different ways. >> How's this coated? >> This is coated in a um it it's got a it's a p it's I don't want to say powdery crust, but it's crunchy crust. You can also do a tempura batter, but there different flavorings flavorings of batter that you can do. And um this is the same type of batter that we had. We just added a little bit more crunch to it. >> It's good. >> And uh yeah, it's it's uh it's very good. Good for breakfast. >> Yeah. Right. Protein Ford. Um what did you know I think I surprised my team when I mentioned this this morning. Burger King is now the second >> what the second largest. >> Who did you overtake and and what what happened to them? >> Uh we overtook Wendy's uh at the end of last quarter when everybody had reported there. And uh listen, I know they're working hard. Um they just announced that, you know, they're going to try to go private. We'll see how that goes. Uh and all of this what what all of our competitors do is really a call to action for us that we cannot rest on our laurels. We've had two fantastic quarters, a really good first quarter as well. And if we want to continue this uh progress and taking share, we're going to have to do a lot more. And it's no time to rest. >> How do you explain? We heard Chipotle talk a little bit about this too. Lower income consumers going into a Chipotle buying food uh being a little more aggressive uh in the third quarter. Are they doing that with you? And like how do you how do you I guess how do you explain an over 8% US comp when people are out there really struggling just trying to make it to the end of the week? >> I I think people still look at fast food as a treat uh and they want to treat themselves once in a while. And when they want to treat themselves, they don't want to compromise. They don't want to say, "Well, I'm going to go get the cheap meal or the least least expensive product or the least uh the lowest quality product." They want to feel like they are treating themselves, they're being treated well. So, when you're talking about elevation and improving your products uh at a time where they're struggling, it's like that's their reward. And so, we get to be the reward for a week of hard work or winning the soccer game or what have you. Um versus a compromise. What I find interesting is McDonald's is having trouble getting its franchises to pay for remodels, but it sounds like franchises want to remodel their Burger King. Like, how do you explain the disparities? Well, we put a lot of work into the design so that it delivers a good uplift and the franchises are very supportive of what we do right now. We're very committed to their profitability and we always have been. We report it once a year at the end of the year publicly and I think they know we have our best interests in mind. So if we're asking them to remodel and we participate in the cost of that then they will jump on board with us. So we've never had a more aligned franchise system and in this franchise business there's nothing more important. >> What is the what is the Burger King of the future look like? We heard Starbucks talk a little bit on their earnings call last night. AI powered drive-throughs where I'm going to drive up and they know what my order is as soon as I pull off, which is which is cool. I mean, is that could that come to a Burger King? >> Uh, that particular that that could come to a Burger King in the future, but you know, we have to be very careful with AI. It's it's a useful servant but a dangerous master. >> And you really can't uh give the consumer relationship to AI or to automation. Um, if you ever tried at home, it doesn't work very well. Uh, but you know, we we use we have something called BK assistant and it's personified by somebody named Patty. Get it? Uh, and she helps team members do their jobs and she help she'll tell you if the shake machine is down. She'll tell you proactively. She'll tell you if any pieces of equipment is down or if you're running out of a certain item. But I've heard a lot in the industry about people wanting to put AI AI at the drive-thru and to have automated order taking at the drive-thru. That in particular, we're not too interested in right now because that's that relationship that you need to preserve. So, we should use AI and automation to create room for the team member to deliver on a great relationship, not to substitute for a relationship. >> Have you gotten comfortable with being the face of Burger King US? I mean, you're still on TV. You have another commercial coming out like are you >> Yeah, we do have another commercial. >> Are you enjoying this? You're like the new Dunkin Donuts guy. I remember growing up and I mean that I total respect. >> Wait, the guy say got to make the donuts. >> Yeah. Yeah. Yeah. >> Um I I wasn't comfortable with it in the beginning and I was petrified when the ad started and the social media started. But you get more comfortable with it as it works out well. Um I do want to back away from it because I although I'm the face of the brand, I think the the brand's got a lot of great faces and a lot of great people that are making it hum right now. >> Yeah. like Patty. Good to good to see you. Great to see you as well. I'll talk to you soon. >> All right. Uh seeing my fabulous uh Yahoo colleagues. Uh where are we going guys? What do we do? What do we got? We got Nickel. Brian Nickel. All right. We're going to do uh stay on all things food and we're going to go right to Starbucks CEO Brian. Nickel the morning after earnings. Brian, what's up, man? >> Hey, good morning, Brian. >> How you doing? >> I'm doing terrific. It's uh it's been quite the past two quarters for you. Um help us understand like how have you driven this major acceleration in comps? >> You know, look, the thing that I love with the results is it's been driven by us executing the fundamentals of the Starbucks business that's anchored by this Green Apron service, right? The I talked about this from the very beginning. We had to put humanity back into uh Starbucks and that was really going to be driven by making sure that the stores were staffed correctly and that we had an environment that inspired a coffee house community and then we had to make sure that we delivered on this Green Apron service experience where people got their drinks in a timely fashion customized the way they wanted. Uh and I think that's exactly what we've done. You know, we've elevated I think the food menu. We've done a nice job on the rewards program. Um, the merchandising has really, uh, I think elevated the business. I can't wait for you to see what we've got coming for holiday in a week. I mean, I think it's the best merch we've ever done. Uh, so, you know, look, you get to these types of results because the fundamentals are driving it and then all the things around the fundamentals are building on it. And that's exactly what's happening. >> Am I wrong to even call this a turnaround or is this something I should call what's happening at Starbucks? You know, look, I I think it's we're back to being just a growth company and uh you know, I think the turn has occurred and now we have all these growth opportunities in front of us because we've got a strong foundation and you know, there still is so much opportunity, Brian, in the business. I'll just give you an example. Um our morning, right? I I said we wanted to get back to winning the morning and that meant we had to win the peak. We had to be staffed correctly, deployed correctly, and give people the experience that they want in the morning. And so, at first, we started out, you know, a 2-hour peak, then we went to a three-hour peak. Uh, we're now on our way to having a 4-hour peak in the morning. And so, there's just growth in that, right? And then when you look at the afternoon, it's the same opportunity. We're going to establish an afternoon peak, and then eventually we'll add an hour or two to it. Uh, and then the next thing you know, you've got a meaningful morning peak, a meaningful afternoon peak, and it's supported by Green Apron Service. It's supported by innovation and it's supported by a great community coffee house. We do that. That's the Starbucks promise. It wins. It's stood the test of time. It's why this brand uh is beloved around the world. >> Brian, I really I I saw this coming not you not because I've just followed your career for a while. It was two quarters ago. You know, I walked into my local Starbucks and it was super clean. They wrote a nice message on my iced coffee. It was cool. They said hello to me and goodbye to me. I walked in. like that was not happening four years ago. How do you how have you gotten the employee buyin? >> You know, look, I you know what I realized, Brian, is our partners wanted to provide that experience you just described? Uh we just needed to give them the freedom to do it and encourage them to be the Starbucks experience that they know they could deliver. And uh you know it what you just described is why we are where we are in the business right now. It's because our partners are greeting people when they walk in. They know their customer. They're committed to their customer. I mean the stories I hear are just amazing. And I even shared this on uh the earnings call yesterday. I I got an email from one of our partners uh Maddie. She runs a coffee house in Northern Idaho. And she literally sent me notes. She said, "Hey, when we rolled out Green Apron Service and the Grow Scorec card one, she was 100% bought into the Green Apron service experience and the back to Starbucks plan." And she was like, "My goal is to be top five in the company." And she was number 1574 out of US company coffee houses. She sent me a note literally, I think it was on Tuesday. Yeah. Because that's when the Grow Report comes out. And she said, "Hey, I just want to let you know I am now number three in the Starbucks enterprise." And you know what? I got on the phone and called her and said, "Congratulations." Because that's the type of leadership that we've got going on in our business. And that is exactly what you felt in your Starbucks. >> I sense a a coming shift in how my drive-thru experience will look at Starbucks. And I realize it's not going to happen overnight. I mean, you have to make a lot of investments, but how will that change? And how will you use AI to help power that change? >> Yeah. So, look, the thing we want to do is we want to one of the things that's pretty unique about our drive-through experience is a lot of our baristas and customers know each other through the orderboard. I I want that connection and that humanto human experience to get even stronger. So, what we're going to do with uh the AI tools is really going to be behind the scenes to help with order accuracy and inputting the order quicker. So, what'll happen is you'll have your conversation with the barista that you know, and while that conversation is happening, behind the scenes, the order will be taking place. The other thing that I think is really exciting is we're going to have almost like the ability to have like a fast pass for the drive-thru, right? Where when you pull up to the drive-thru, if you're in our app, it will recognize you. So, it' be like, "Hey, Brian." And it'll show the order that you've placed historically or the last time you ordered. So, it's already right up there. You could just be, you know, the barista will be like, "Brian, is it the usual?" You'll be like, "Yes, great. It's paid. Now you're off to the window to pick up your drink and out you go." It'll be the fastest drive-through experience you can have. And that's why I'm calling it like we haven't named it yet, but I feel like there's going to be a fast pass. >> Well, you just named it right on my show, Brian. I appreciate you, man. Maybe # breaking news. That's what we're doing here on We'll see if we can tag it that way. But, you know, it's it's a little bit a ways away, but that's the vision we have, which is how do we just make it more frictionless? How do we make it more u kind of personable? Because if you can skip some of the payment aspect and um you know having to go through how what you want to order again and you can just get on to like hey how you doing Brian? You know is it the usual how's your day and then on you go you get your drink and uh you get going with your day. I think that's going to be hugely powerful. >> Brian I'm biased but maybe it's called the saw lane or the unleash lane or maybe it's something but we could we'll take that offline. I I I have your email. >> Yeah the sazy pass. >> Yeah the s pass. I I appreciate it. All right. Well, Brian, good to see you. I thank you for doing this and good to see that uh success story unfolding at Starbucks. I'll talk to you soon. >> All right. Thanks. Take care. >> Yeah, likewise. All right. Big day, big week for Unleashed AI. Uh some amazing food chats, a turnaround. Starbucks continues. And to all that, I say stay unleashed. Hey, hey, hey. Heat. Heat. Heat. Heat. Down. Down. Heat. Heat. Down.