Episode 38 | Navigating the US-China Tech Race: Apple, Nvidia, and the Future of AI

In Episode 38 of “Market News with Rodney Lake,” Professor Lake, Director of the GW Investment Institute, dives into recent market developments focusing on the ongoing impact of tariffs under the Trump administration. Lake examines how major companies like Apple and Nvidia navigate challenges in China, including competition from local brands and chip manufacturing concerns. Professor Lake also analyzes Apple's position in the AI race, where it lags behind competitors but may leverage its platform to integrate multiple models efficiently. Despite emerging competition, Nvidia’s dominance in AI hardware and software remains unchallenged, while ongoing developments with TSMC’s US-based chip production raise questions about future supply chains.

Transcript

Thank you for joining “Market News with Rodney Lake.” This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the Director of the GW Investment Institute. Let's get started. Welcome back to “Market News with Rodney Lake.” I'm your host, Rodney Lake. Today's episode, we're going to go over what we really do in class for market news. We're going to go over a variety of different things. Now we're going to talk about some individual companies most certainly. But today we're going to check in with the market. There's been a lot going on. So I think it's worth taking some time to figure out what's happening. What do we think? Now the Trump administration 47 if you like this, say Trump 47 or Trump 2.0, how would you like to do it?

Tariffs are at the top of the list. Everybody. Sometimes they go from freaking out to everything's fine and everything in between. And the market then reflects that uncertainty and sentiment. And so in the days like yesterday, today is March 25th, when we're recording this, a day like yesterday the market's sailed ahead and the market's doing just fine again today because Trump said well maybe we're going to get a little bit of relief in here for this.

Well for the Investment Institute and for our portfolios, we're long term investors. So we're trying to think, you know, long term. But we're certainly trying to pay attention to what's happening in the short term and really trying to understand what are the impacts on the companies that we own for these tariffs. So many of the companies we have are very global companies.

At the top of the list of concerns for what's happening in the world is what's the relationship between China and the US? Right now, what's happening in China is the Global Development Forum. There are companies, there are companies in China right now. It's in, Beijing. It's hosted and trying to develop this relationships between the government, in China and global companies.

So some of the notable US companies in attendance, including Apple, but Tim Cook, Pfizer, Broadcom, Micron, Mastercard. So these are companies that are there, you know, trying to sort of build these relationships and keep these relationships that already exist. Obviously for let's dial in and for Apple. In a moment we'll talk about that. But China is again at the top of the list for the tariffs, talk for the Trump administration right now.

So I think it's worth some time to try to figure that out. I also just spent some time in China. And I'm going to have a special episode on that to talk about, a little bit of reflection on the trip, but also a little bit of a dive in, to what the Chinese market is looking right now.

You know, as a, you know, equity market overall. But we'll that'll be in a separate episode, to be continued and to, you know, come out later. But that's an important conference. These are important companies that are over there. Now let's dive in a little bit on what's happening with Apple in China. So the market news there is that the Chinese markets, obviously a very important market for manufacturing, using Foxconn as an example, but also for sales in China.

It used to represent, let's say, 20% and now it's down below 15%. So that's a pretty rapid change. One of the reasons is local competition has been picking up and sort of this icing between the US and Chinese relations. And so but a company like Huawei, for example, is gaining ground, for sales against Apple, in that Chinese market.

And so it's really important market for Apple. So they need to continue to stay focused on that. And there's obviously some things within Apple, which we'll talk about that has possibly, you know, they've stepped on their own toes in this case, where, you know, the 16 is maybe not as fully featured with the AI as they would like at the moment.

But they'll have time possibly to catch up. But again, other companies are in China, and I think it's worth noting to say that the Chinese market is having some trouble. You know, they're trying to get their market going from an export, driven market to a consumer driven market. That takes time. But certainly the number one GDP in the world, the number two GDP in the world, the US and China, these are super important markets.

I think, they're going to be joined at the hip for a long time. And it's certainly better, for us to think about, you know, each other's strengths and, you know, to serve our strengths together, to try to figure out how do we do business together, how do we work together? I think these are going to be the most notable markets, you know, moving forward.

Now, other markets like India, are very important, for example, for Apple as well as an example, but certainly not as important in the next, immediate term, in the next, let's say medium term for Apple and for other companies, too. It's just a much bigger market by GDP. So what else can we say about what's happening, specifically with Apple?

Well, if we dive in, I mentioned this already. What's happening with the AI? Well, you could call them a laggard at this point. Apple's one of the largest holdings for the GW Investment Institute. Remember? Educational purposes only here. So it's something that we think about, something that we talked about. Obviously, almost everyone knows about Apple.

A lot of people have iPhones, the installed base, you know, over a billion iPhones installed in more than, you know, 2 billion devices. So this is an important company. This is an important, you know, market and certainly an important company. As for owners, for us to think about now, they have been late to the game and some people would say, well, you know, that's the typical Apple setup where, okay, they're going to be a little bit later, but they're going to get it right.

They're going to figure out what's the best way to play AI on their platform. And they're going to, you know, take advantage of what's already happened out there. They don't have to pick the winner. Although it seems like, you know, that the early partnership with ChatGPT and OpenAI, looks like they have selected that. Now, in some regards, OpenAI and specifically ChatGPT and now ChatGPT 4.5 does look like the leader in the large language models.

Now there is competition. Claude Sonnet is certainly doing well. Grok 3 is doing well. Gemini I would say, is in the back seat at the moment on a lot of the things and now they do lead in some categories like the context windows as an example. So it's very it's also hard to determine, you know how you know when you're saying what's the best.

How do you figure that out? Well, there are different ways to understand that. And then of course DeepSeek. We mentioned China coming out of China, which is a very important open source model, on reasoning and has done very well. And, you know, now how they got there, you know, maybe it's not quite as cheap as they have said, for the production of that model, but it's certainly, worth noting that it is, a very efficient, reasoning model.

And, and I think it's going to be a key player, at least in the short term here moving forward in the medium term. Now, the landscape is changing so rapidly, it's really hard to determine what does the next three years look like.

Now these companies are all spending a lot of money on these things. And maybe Apple can then figure out a way pulling it back to Apple here.

Maybe Apple can figure out a way to use all the models or give choice for people, for the models that they want to use on their devices, whether that be their phone or their iPad, or their MacBooks or their Mac Airs, whatever they happen to be using. And maybe that's going to be the best in class that you get access to any of the models that you want.

You have access to all the models. And Apple's the best way on the device, through their OS and their hardware software world to access those models and for you to be productive using those models. Time will tell. Apple has done it before where they've been late to the game. They certainly were not the first, you know, smartphone.

But they were, you know, they ended up being the leader in that case. So we'll have to see, as investors, we're paying attention. Now, the market cap for Apple, 3.3 trillion, as we said today, the forward PE it's certainly not cheap. 30 times. That's not that's not cheap. And I really think, you know, they're going to have to figure this out.

The services business continues to be a powerhouse for Apple. And, you know, possibly why they deserve this larger margin. And I think that's important to note. But again, super important company, super important in our portfolio. Very much in the news, Global Development Forum happening in China. At the top of that list, of attendees is Tim Cook and Apple.

And I think people should be paying attention to the relationships between the US and China through companies like Apple. As I mentioned, I was in China for a week recently, for GW, visiting different universities and I'm going to have an episode talking about that and the things that I saw from my perspective and the things that I think are important, the things that are happening now.

But we'll spend a whole episode on that. Now, I do think it's timely and important to mention the Global Development Forum and again, a company like Apple headlining that and Tim Cook spending his time over there, and meeting with Xi Jinping and other government officials, I think that's notable. And that you should be as an analyst, as a business person, as an investor, being paying attention to what's happening there.

And we'll talk about some of the Chinese companies here to come as well. The partnership that they're building with Apple in China is with Alibaba. So I think that's also worth spending time on. And we'll spend some time on talking about Alibaba as well. That said, some of the other companies that I do think it's important for us to be paying attention to.

Now it's hard to really talk about what's happening in the market without talking about Nvidia because they're so consequential. Now you had this big run up and now pull back in the market. And Nvidia has been, you know, at the center of that, the year to date number here in, March 25th when we're recording this is, you know, down almost 11% year to date and it's down today.

Meanwhile some other companies are up on the day, Apple, Microsoft up as an example. And again, we're not day traders. But just to give you some context, but if you look at sort of the overall numbers, the year to date number for Apple is down 11. So very similar to what Nvidia is experiencing. So but we always talk about Nvidia it seems like but I but I do think when we're going over market news you got to talk about what's happening there.

It doesn't seem like any of the big hyperscalers are spending any less money. It doesn't look like anybody wants to fall behind. We have we've talked about that in the past. And certainly Nvidia is the company that's selling all these chips. Now you do. Now that we tie in China, you do have concerns about can they produce the most advanced chips outside of Taiwan?

The factories here in the US being built, for example, in Arizona by Taiwan Semiconductor, they don't seem to be going as rapidly on the build as everybody would like, certainly the people that are in charge of that, and are they going to be able to produce the most advanced chips right away? They are not. So they're not going to produce the most advanced.

The most advanced will continue to be built in Taiwan by TSMC and the TSMC. Factories in Arizona, for example, will produce less advanced chips, advanced, you know, compared to, what you and I could produce, you know, in our lab that we would set up overnight, but certainly not the most advanced in the world, even relative to the things that they do.

So it is important to think about that. See, now, that can come, and it may come more rapidly than we expect once they get up and running, once they get production going, maybe it's more feasible for them to get the most advanced chips more rapidly than we expect after that point. Now we'll time will tell. But they are having some trouble there.

But I do think it's worth thinking about. Nvidia is in its position and it's really its moat. So when we talk about the business, the management, the price valuation and the balance sheet for these companies, we talk about Nvidia when we talk about the business and we talk about the management in particular. You know, Jensen Huang, and we had Dan Ives on, you know, he talks about Jensen Huang as the godfather of AI.

You know, his management style is very particular. 40 direct reports, approximately very different, you know, structure than many of the companies, founder-led companies. So we still think that's good. The moat around the business is that there is no second place at the moment. That's close. Right? A distant second place might be AMD and that is a distant second place at the moment.

If you look at the spend in the server market in the last earnings for AMD, they really didn't have it. And so, you know, there hasn't been any really news since then when we're paying attention again here to market news of why anyone else is really catching up. And meanwhile Nvidia is not sitting still. You know Blackwell is coming out.

If you look at the spend in the server market in the last earnings framed, they really didn't have it. And so, you know, there hasn't been any really news since then when we're paying attention again here to market news of why anyone else is really catching up. And meanwhile Nvidia is not sitting still. You know Blackwell is coming out.

The next generation of chips are coming out. And they are saying that, you know, DeepSeek for example, you know, was a big, hey, you know, eye opener. And people thought it's going to put a big dent in their market. Well they're saying something different. Jensen Wang is saying, look, this is all good because what's going to happen is this is going to fan out and there's going to be a lot more opportunity for us to serve different customers.

And this is one example of how, you know, that could play out moving forward. But Nvidia, with their hardware and software. Now we go back to the business, management, price valuation, and balance sheet and dive in on business. The business is hardware and software different than AMD, for example. Not that they don't have anything, but they certainly do not have the capabilities that Nvidia has built over the last, let's say, 20 years.

And we've mentioned this before, more like an ecosystem like Apple, where you get in there and you have Cuda, which is the software layer for Nvidia. And that's what helps you define the operations that you want and make your setup more efficient. And once you get all that build, you know, are you do you really want to change?

Right. If you really define things, on the hardware and the software side, and it's running for the things that you want to do. So there's some level of customization that you can do on the software side, that makes your applications, makes the things that you want to do with that AI much more efficient. Well, then, you know, switching to someone else is a big lift.

There is a barrier to exit there. That is important. When you talk about what's the moat for that business, who's in second place seems distant right now that, not that there's not anybody else. But you have you can think about names like Broadcom and AMD and others and Qualcomm, even in this case so it's important and I should mention before I forget Qualcomm also on the list of Global Development Forums in China.

So important to think about there and a company that that we own in the portfolio. So again, these are important things. This is something that you should be thinking about. And now let's just talk about, another company that that certainly in the news, Microsoft also down year to date, not as not as much. You know, about, just over 6% year to date.

Now this and if we look at the, you know, the business of Microsoft, they continue to be dominant Azure you know leading investor in ChatGPT. So they certainly sit at the pole position right now on what's happening with AI. And again, they're, you know, customers are, you know, ready to adopt things like Copilot. And you have to think, well, maybe that Microsoft, is going to be in Dan Ives mentioned this when he was here talking about maybe Microsoft is the secondary

AI play on the software side because the applications that flow through their businesses are going to be aided by software. So they have this installed base that they're an enterprise customer. So it's really important for us to think about, well, if people want to test new things, maybe they're going to test it through their current enterprise setup, which in many cases happens to be Microsoft with OpenAI's large language models or maybe other things as well.

But Microsoft has a huge installed base of enterprise partners, enterprise customers, and, you know, enterprise knowhow. And on the security side, as well is very important. And when we were talking about technology overall, that is going to be also something that's part and parcel to think about moving forward on the AI is what's the cybersecurity? We talked about crowd.

CrowdStrike, before is one of the companies that we own in the portfolio. Very important. But there are others like Palo Alto. These are all important things Microsoft certainly, in the CrowdStrike, set up, that was a bit of a faux pas. But quick recovery. And CrowdStrike seems to be hanging in there. I shows sort of the demand for their product, shows the relationship with Microsoft, and it doesn't look like any of that's going to be upset.

So, next market news here. Let's talk about Tesla. You know, that maybe it's the favorite company that everybody doesn't want to, like right now. Now, the year to date number, now yesterday was up big 10% plus on the day, but it's down 30% year to date. This is through March 25th again here. So down big there's a lot of concern in the market.

You know Musk is running Doge. There's a lot of people unhappy with what's going on there. And you have people torching dealerships and cars and, and keying cars. And so this is not a good look, sales are down in Europe. So, you know, there's a lot of questions around this. But when you think about market leaders, in the world of technology, you think about the full self-driving and you think about Optimus, and you also think about power.

And we talked about this when we covered Tesla. These are things you have to think about. So there's a lot of negative sentiment, in Tesla. And certainly, sales are down. And if you look at what's happening on the PE side, you're still have a pretty high PE, when you're talking 100 times, on the forward PE.

So you talk about the business to management to the price valuation and the balance sheet on the valuation. Certainly not an undervalued company. People projecting lots of growth here. And if you look at what's happening in the Full Self-Driving, what's out now, 13.8.2, very important and this has been going, you know, the very rapidly it's been, you know, growing the as far as the capability of this and it looks like they're going to be the first company at scale to have a Full Self-Driving.

You know, you know, you got to get to regulatory approval. That's a separate thing. But they can operate on any road they have, you know, 7 million plus cars. They'll have 10 million at the end of this year, for example, or close to that number. That's the installed base of the cars driving around.

Not all of them are running Full Self-Driving, but certainly have a bunch that are running Full Self-Driving. So that's way bigger than Waymo, for example, that, you know, maybe is running, a small portion of cars, but but not anything close to that. So when you talk about, okay, well, what's the market news for autonomous driving, what's the what's the driving force, pun intended here?

Right now, it seems to be Tesla. They seem to be in the pole position. They seem to be on that leaderboard as number one and everybody else is second. The number of cars. The other part, and we had Dan Ives on, talking about this is the manufacturing base for Tesla. These other companies do not manufacture their own cars.

They don't have the setup. They're using a different technology, which, you know, Tesla has called a fool's errand before, and maybe it is and maybe it isn't with the lidar. But certainly they do not own the manufacturing and they, capabilities, and they don't have those chops to get those cars out in any meaningful numbers going from here.

Now, maybe that changes. They have some partnerships, all that can change. However, right now, who leads on the, you know, vision base, go anywhere, in the US and now in China. So if you go online, you can find videos of people using Full Self-Driving, both in the US and China. We're mentioning both countries heavily here today in the market news.

But Tesla is leading, I would say, in both those categories. And if you go online, you go on X, you can find videos of people using Full Self-Driving in China, on a variety of different roads and saying how that they're getting fairly good results with limited interventions in that. And the other part of this is the Optimus. Now, if everybody wants to get a robot that make their bed, wash their dishes, cleans their house, this is going to be significant, right?

And if they can get the production, this goes back to the manufacturing base here. Tesla can produce these robots at scale. I think few other companies would have that manufacturing capability. The hardware, the software, the autonomous piece, you know, all camera driven that's going to be put into the autonomous humanoid robot, right now. The Optimus platform is that platform moving forward.

So this is going to be an interesting set up. The market value alone for that could be in the several trillion dollars if everybody wants to have a robot, this could be the biggest product ever. Now, that's a lot of speculation. But they are making progress on that. They say they're going to get some robots out this year.

We'll see how that goes. But it is interesting. I think you should be following again. This is market news. That's why we're talking about it. I think you should absolutely be following what's happening on the autonomous driving, the Full Self-Driving, and on the Optimus platform. The other piece that I'll mention, you should definitely be paying attention to what's happening in the energy business.

A lot is moving to solar. And if you look at what's happening in China, adding a lot of solar, solar, what you need for that is batteries. Tesla is a leader in that. They're they're selling as many Megapacks as they can right now. And with their integrated software, thermal management systems, they are a leader in that category.

And they can probably sell as many as they can produce at the moment. So that is a growing business. And as the world becomes more and more electrified, that's going to be more and more important. You need to add solar. You need to add batteries to back that up. The sun doesn't shine, at night, depending on where you are in the world.

And so super important, it also harmonizes the grid because electricity has to continue to flow, for the grid to stay stable. So there are many important reasons to do that. They build this software called Autobidder. I encourage you, we talked about that before to pay attention to that also, so that that's what's happening in the market.

So we covered a few different companies. We covered the the Global Development Forum, which is happening in China again, headliner company in the US, Apple there, Tim Cook in country. I do think it's worth time to think about what's happening. Between the two countries, tariffs remain at the top of the news. We'll see what's going to happen here in early April.

April 2nd. But you got to lift in the market over the last couple days because, you know, Trump has at least indicated maybe it's not going to be as bad as everybody thinks in the market seems to be interpreting that as good news. Time will tell. But something for us to think about overall, you know, again, for the GW Investment Institute and the funds that we run, we're certainly not trying to be day traders, but we encourage all of our students.

And if you're at home and you're an analyst and you're an investor and you're a business person, you should be paying close attention to what's happening in the markets every day to try to build your own base of knowledge. So the big companies are obviously the ones to follow some of the smaller companies it's interesting. Leading edge technologies is what's happening.

Looking across sectors, I would say stay focused, for example, on the things that you like. You're interested in. You can do a lot more work on those things. And our case for the Investment Institute, we're heavy in technology. Our students have spent a lot of time on that. That is seems to be the way of the world in any case.

It seems like most companies at this point are technology companies in different sectors because they have to use technology, whether that's in the consumer, that's in health care, that's in finance. As an example, the way of forward and it has been in the past is the use of technology. And certainly right at the top of that list is artificial intelligence AI, which we've been talking about today in all the companies that we've talked about today, have their play, in their space in that AI.

So pay attention to that. Pay attention to what's happening in the US, pay attention to what's happening with tariffs. Pay attention to what's happening in China. The number one and the number two economies, respectively by GDP. We will talk more about my trip in China. And so my takeaways. We'll have a separate episode for that.

Thanks for watching this episode. Today was Market News with Rodney Lake. And we'll see you back on the next episode. Thank you.

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