Episode 63 | Q3 Market Recap: From the AI Race to Data Centers in Space

In Episode 63 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, provides a market update as the third quarter of 2025 ends, highlighting strong year-to-date gains for the S&P 500 and Nasdaq amidst interest rate cuts, tariffs, and a government shutdown. He discusses Apple’s recent iPhone 17 launch and high valuation but expresses concern over their unclear AI strategy compared to Nvidia and Amazon. He also explores Amazon’s Kuiper satellite project and the futuristic potential of data centers in space. Professor Lake encourages students and investors to actively integrate AI tools into their research and investment analysis, sharing optimism for continued market growth and AI’s transformative role across industries.

Chapters

• 0:00 Introduction
• 1:06 The Market, The Fed, and Interest Rates
• 6:45 Apple, AI Strategy, and Big Tech Valuation
• 13:35 Leveraging AI as a Student and Investor
• 16:21 Amazon, Ads, and AI
• 21:48 Conclusion

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. Thanks, everybody, for tuning in. If you're coming back to the show, welcome back. And if you're tuning in for the first time on the podcast, on the YouTube channel, welcome. We're coming to you from the George Washington University School of Business. Duquès Hall, Foggy Bottom right here in the heart of Washington, D.C.
And there's a lot going on. Today's episode is going to be a little bit of the overall what's happening in the markets. The really, you know, Market News with Rodney Lake style, which is what we do at the beginning of class, not a specific company. However, we will mention some specific companies like Apple as a heads up, foreshadow.
But welcome and welcome back. This is a podcast by the GW Investment Institute. This is for educational purposes only. We're going to talk about some companies, some of which we own in our portfolios. Again, informational, educational. But let's kick it off. What's happening in the markets? Well let's kind of do a year to date, right now.
So we're on September 30 for this episode when we're recording it. It'll be out obviously after that. But, you know, we're finishing out the third quarter here heading into the fourth quarter for the calendar year 2025. And it's been obviously up and down. You've had, you know, some severe sell offs towards the end of last year when people were worried about the deep seat model, if you remember that.
And a lot of concern really around Nvidia and what's happening in the AI trade and maybe things are going to be way more efficient. You don't need all this compute power. As people are thinking. Not the case. Not the case at all. Things have been roaring back then. You had, Liberation Day, early in the year.
Things sold off hard and then bounced right back as soon as things got paused on the tariffs. So very different situation, than what people anticipated. And even now with some of the tariffs and deals have started to make their way through the system, I think some of the surprise has been that these, you know, so-called inflationary spikes that we were likely to see haven't really happened.
And I think people have been surprised by that in the market, has reacted, fairly favorably. So if you're looking at, what's the year to date number? So let's take the S&P, for example. Again this is through September 30. Markets still open when we're recording this. But 14.3% is the total return year to date. Through most of the third quarter.
The market's still open right now, so we can't say that's a closing number yet. And the year to date on the Nasdaq even better 17.5%. So these are pretty big numbers, especially since, you know, we've had big numbers in the recent years. And I think a lot of people were anticipating that this year is not going to be like last year.
And we're not going to put up another 20%. We're not going to put up maybe even, a double digit number. We're going to be in the single digits. And possibly everyone, you know, has been thinking about recession for a while, but, you know, what's the backdrop? And then most importantly for what we think about, where do we think things are going?
But let's do let's take account of a couple of things, while we're at it here. So those are the year-to-date numbers. And obviously that's been up and down. That's not been a straight line, to get us here. And certainly there's a lot going on. One of the big things that we talk about and people in the investment business, if you're an analyst, a business person, an investor, you should absolutely be focused on, this is what the Fed is doing, right.
That sets the interest rates. A company is only worth its future cash flows this kind of back to the present. That discount rate that you're typically going to use is the ten year number, and the Federal Reserve is going to have a big influence not directly, setting, but have a big influence when they set their target rates.
And so now, you know, the Fed has started to drop rates. But, you know, relative to history, they remain you know, generally, you know, I would say, okay, not high, not low, not not something crazy. And so we're certainly not looking at the 80s, we had inflation and you had, you know, teens, type of interest rates.
We're not there. Right. And so, if you look at the 30 year fixed mortgage for something that's usable that people interact with, it's actually come down a little bit, 6.3%, depending on the day that you're checking if Fannie and Freddie, depending on what site you're checking. That's not a, you know, 3.5% mortgage that some of these people have.
And we can talk a little bit about, you know, what we think of the housing market. Prices have generally been up, there. But let's let's think about interest rates. So interest rates have remained steady. The fed just cut rates this month at their last meeting. And so 25 basis points. So now, you know, I think we're going into a period of rate cutting.
And that's what the market has been pricing. And so we'll have to see the market has been acting obviously very favorably to that. But the equity market in particular, for the show, we're mostly just by the way, focus on the equity markets for our GW student investment funds that are part of the Investment Institute now, just over $11 million.
That's where a focus on it's all an equity portfolio. Maybe someday, we'll have a fixed income fund. But for now, it's all equities. And that's what we're really focused on. Obviously, we got to focus in on the interest rates, and we have to pay attention on the fixed income side because our companies issue debt, they issue corporate bonds, as an example.
And that's the debt on the balance sheet that we look at for these companies. By the way, we prefer net cash, as we've mentioned many times, but we have to pay attention to those things. So we do we have our students focus on that. Our students are, you know, in week six now. So we're cruising away through the semester, and I think our students are doing a great job.
Some of the companies I'm going to mention, we're thinking about, but the overall market news, it is a busy time. You have the tariffs going on, you have interest rates, and it's September 30th. And this episode obviously is going to be dated. But you have a government shutdown looming midnight tonight or 11:59. Tonight the midnight shuts down if they don't reach a deal.
If you listen to what's happening this morning so far, doesn't look like there's an imminent deal. Now, that being said, some of these things get crafted literally at the last moments. And so at the last minute stroke of midnight, these things get done. So that's still possible. We'll be optimistic. We'll hold out the hope if the government does shut down.
Hopefully it doesn't, you know, have a huge impact and hopefully it doesn't really set markets off. And if you look at what's happening in the market today just to talk about that for a moment, the market is down a little bit, but not not tremendously down. It's down less than a percent. If you look at the S&P .05 percent and 0.1 5% for the Nasdaq.
So you're talking about pretty small, down numbers, especially when you consider how up the market has been. And sort of the tear that the market has been on for the last few years. And so that's not something, you know, that we should be so concerned about. Now, let's talk a little bit about some companies. This is a company that we talked about in one of our prior episodes, when we gave a general market update.
And it's Apple. Apple is one of our larger positions. And why are we going to talk about Apple again? Well, they announced the iPhone 17. And you know, some skepticism from some analysts out there around. Okay. Well Apple you know the last couple product cycles have not been hit. Certainly not like the hit list from, years past.
And so I think there was some anticipation that hopefully this year is different, but also some, hey, maybe, maybe this year is going to be the same. Maybe things are not going to be as good as we thought. Maybe people are not going to refresh, the whole AI refresh that they thought on the 16 didn't really happen. And so people I think we're in two different camps.
People thought, okay, this refresh cycle, there are some new designs out there. You have the thin, you have the Pro with the upgraded cameras, 48 pixels. And and maybe this will get people, you know, if they're if they're rocking at 13. That's what I'm rocking by the way. Maybe it's time to upgrade and maybe for me too.
Right. And so I think these things are likely to start happening. And by the way, that seems to be what's happening. So if you listen to AT&T and Verizon, they're saying that the numbers are super strong. And the pull through for the 17 and really for the 17 Pro, is where people are. The thing I think is an interesting set up, and it probably has a separate market.
And it looks like and if you hear any reviews, for example, on the Pro, I think that gave having this thin phone gave Apple the license to make the Pro a little bit bigger. They have a vapor chamber for the first time. And so all and you know, upgraded cameras, which a lot of people love and a lot of people use it, you know, for for different things including family photos, but all the way to creator content, people using their iPhones for that.
And so I think it makes it more versatile. They made it bigger. They've added a 20% bigger battery. This is not an ultra phone as an example, but it is a significant upgrade on the iPhone. It looks good and obviously everything integrated with iOS seems to be working well. And so let's see, maybe I'll deliver my own review if I do get an upgrade.
Let's see again, rocking the 13 for now. More to come on that. But let's talk about the company. So there's optimism obviously around the iPhone 17. And I think people are excited and I think for good reason. Now what are the things that people are not as excited about? Apple. Well, one is the lack of AI clarity from the company.
What are they doing? What's the path forward for Apple and what what is their plan for AI? It seems to be well, let's wait and see again. Apple famously not first, but second and third and crush it right? Really come up with the highest quality, best experience for the consumer and one of the things that I think is important to note about Apple is this ecosystem.
I have an iPhone. I think many people obviously have an iPhone, billion plus users here is the fact that people get locked into this ecosystem. I thought about switching to a Pixel ten. The phone looks good, but the idea, you know, there's barriers to exit. A lot of my stuff is in there, pictures and all these things.
And I think a lot of other people in this same category, and people worry about the privacy as well. And so do I, you know, about switching out of that ecosystem. What does that mean? So there is a barrier to exit. And I think that's reflected in the brand for Apple. You know people people still I think love Apple I still love Apple I still love my Apple products.
I am a little concerned as an investor and from the Investment Institute, personally as well, in Apple about what's their AI strategy. Well, you know, to be determined, but a lot of good news is priced in. So when we look at the business, we say, well, great Apple. Fantastic. Doing a great job. Still having great margins.
And now they got a product out in the market that seems to be doing well. But if you look at the valuation, a lot of this good news seems to be priced in. And even maybe some type of AI strategy is implicitly priced in because. So you look at the Ford P right now in Apple you're talking almost 35 times.
That's expensive. And so it's embedded in there. So I think it's a challenge. When you talk about Apple to say like, well, you know, this is a lot of good news is priced in there. And so we're going to take a look at Nvidia just to comp it out. Right. So and like where's Apple compared to Nvidia.
So Nvidia, a lot of great news. I'm just pulling up some screens here. A lot of great news is baked into to Apple and 35 times. And the company that is and they don't really have an AI strategy. Right. That we know of right now. Maybe behind the scenes and they're working on it. It's not so clear.
Let's say at the center of the AI world is Nvidia, our largest holding at the GW Investment Institute. And it's hitting a 52 week high today just to make super clear again, September 30th, 2025. And it's been a killer here, right? It is leading the AI revolution. It is at the center and it's trading at 41 times.
And so wow. Okay, well, you can say that's expensive, but for a company that's growing, at the pace, that it's growing. Well, you know, there's a big, let's say, gap there where we're thinking, okay, 35 times for Apple that doesn't have any AI strategy, or at least not a clear one that we're super aware of. And Nvidia, that's at the center of the AI world and seems to be gaining speed, you know, paying 41 times.
Okay. So that that's something to consider. Let's comment out against another company in the business here. And look at Amazon. Now, Amazon is very different than these other two that I mentioned. But Amazon is trading at 26 times 26.5 to round it up 26.5 times forward PE. So I think you really have to think about this.
And certainly when you cut Apple to Amazon and again these are not directly comparable as in you know these are substitutes for one another in products and services. But as an investment we can have any one of these in our portfolio. So we can own Nvidia. We can own Apple, we can own Amazon. We own all three for the Investment Institute.
Just to be clear, but what's the right mix that we should have? Well, I think time will tell. But it is a concern. Again, back to Apple. What's the AI strategy? We got to pay close attention to that. We do have our analysts working on that this semester. So our students are busy. Focus on that. And you know again I have my concern.
Tim Cook though has been excellent as usual. Mending the fences with the administration. You know, really getting these products out into the market. And even in China, people are excited about the iPhone 17. That was a concern before, and right here at home here in the US, people are obviously, super excited about that. So I do think it's time to really take a close look at Apple, and really try to better understand, what's that AI strategy and how we should be moving forward. Now for the overall market.
So we try not to obviously make any predictions about any of these things, because we really don't know. None of us really know. But when we're saying as investors, what do we think for the future? Well, one of the things that we're supremely focused in on is that the mega caps seem to be dominating, the business and dominating certainly the AI world.
Now, that doesn't mean that they're not companies that are coming up, and that, you know, weren't big companies before, and now they are for example, xAI, OpenAI, Anthropic, excuse me, all these companies seemingly came out of nowhere just a few years ago. And now they're, you know, multi-billion dollar companies, and growing. Now they're in the private markets right now.
And so that the amount of capital in those private markets is very significant. And who wants to lose the AI race? The answer is no one. The lead out there, obviously. In name, you probably have OpenAI and ChatGPT. Grok and xAI is closing fast. Anthropic is right there. A lot of these models. It depends on the benchmark that you're using.
And we tell our analysts you should. Absolutely, absolutely. We tripled down on this. And even like public service announcements in class, this is a jump ball for AI. As an analyst, investor, business person, student, we're all students. You should be thinking about how you get smart on AI, how to use AI. How do you say AI for investment analysis?
We have a quant student investment fund course that'll run in the spring semester. And we've been using these AI models to create different, you know, scenarios, to create different models to help us select companies. We've already been doing that. We're going to be doubling down, tripling down, quadrupling down in the spring on that. But we're going to be, you know, trying to do analysis right now and encouraging our analysts to think about how we're using these AI models to make sure that we find the best investments, obviously, a little bit meta, not the company meta.
We do own them to, to use AI defined AI, to invest in. Right. And maybe this is where you're mixing this quant the mental, the fundamental with the quantitative. And we've been doing that in our quant class. And now probably we're doing that some already, in our fundamental classes where you're really needing to add these tools in to see, you know, what kind of scenarios can we think up, what's the future look like?
We don't know. None of us really know. But testing different things, thinking about different things. We encourage our students all the time. You should absolutely. And and certainly if you're watching the show either on YouTube or listening on the podcast and you're an investor, you're a business person, you're an analyst, you should be thinking about how to use AI, and you should try to use it every single day.
That's what we tell our students, you know, use these tools, whatever tools that you happen to have, you should be trying to use those and get smarter, and make yourself more productive. All right. Back to some companies here. Well, we one of the companies that I mentioned was Amazon. I think Amazon was a little bit overlooked as far as like the big behemoths in the AI.
You know, they have these trainium chips. And I think it's important to to watch out for those. We've talked about Amazon, Amazon before obviously on the show. And that's one of our holdings, across some of our portfolios. But I think in the AI play, I think it's a little bit sort of not talked about as much, as maybe I think it should.
So I think it's a little bit, certainly not off the radar. Everybody knows Amazon. But on the AI play, I think it's a little bit off the radar. They have an investment anthropic. Obviously Amazon Web Services is a beast. It's dominant. It really led the industry. It's still it's still the big player there obviously Microsoft Azure and now Oracle coming on super strong in the AI play.
You know tip of the cap to Oracle. We do own a position in that as well and have benefited recently from that run up. But I think it just shows you that the companies that are in this game are in it to win it. They're putting big numbers to work. I think if you think about the company Amazon and you think about what companies have the scale, what companies have the opportunity to deploy AI across a variety of different activities, across a variety of different fronts and business lines, and benefit from that?
I think Amazon has to be in that conversation. When you talk about AWS, I think that's obvious. They have their own Trainium chips, right? And so it's doing smaller workloads, that are they require less power, you know, energy, which is super important. One of the bottlenecks of this whole AI revolution is the amount of power, when you talk about some of the things that were announced, ten megawatts of electricity for the for the deal between OpenAI and Nvidia.
Well, to put that in perspective, that's approximately 8 million homes, right? That's a lot of homes. That's a lot of power. So this Trainium chip back to Amazon uses a fraction of the power that the Blackwells used. Now, it doesn't have the same horsepower either. But maybe it can manage. And it does smaller workloads, more power efficient.
And then it's about well, how do we organize these workloads and how do we get, you know, these different tasks into these different categories, and we can optimize it, make it more efficient? Well Amazon they're not making those chips Taiwan Semiconductor is manufacturing. But they are designing those chips for those specific workloads. And then obviously offering those up on Amazon Web Services.
So I think that's important. So I think that's an important player to watch. But you know for the market news overall AI dominates the headlines. And I do think as a business person, analyst, investor, you should be absolutely paying attention to this. And I do think Amazon is one of those places that you got to pay close attention to.
The other part of that would be obviously, or other parts of that are in the content creation. They certainly have Prime and Prime Video, and there's lots out there where I think AI is going to have a big impact on content creation and I saw I think they have a big they have scale there that they can deploy.
And then reality, right. Things that you get shipped to your house, obviously everyone gets Amazon. Not everyone. Many people get Amazon boxes to their doorfront or to the, you know, basement of their building or whatever desk it goes to. If you live in a building that's super important. All the logistics behind that, the Amazon warehouses, they can be made more efficient with robotics and driven by AI.
So I think obviously that's a big place for them to deploy. And the other thing that I think is worth mentioning, and this is, I think, early days, but I do think it's worth at least thinking about, which is the satellite, the Kuiper project that, that Amazon has, that's going to be launched mostly on, on there.
We're not there, but Jeff Bezos rockets. I think moving forward, the New Glenn, which is Blue Origin and probably others. In the meantime, certainly a competitor with SpaceX there and the Starlink. But this is a public version to get that. And we've talked about that before. And I think just one thing to to note, and maybe this is an area of further research that we talk about with our students, which is data centers in space.
When does it make sense? That we have that, that we do that unlimited energy with, solar, obviously radiation is an issue. But if you have satellites in low Earth orbit or LEO, certainly the latency becomes less of an issue. Obviously updating those things is more difficult, but if you can get the cost lowered per launch, you can put up a lot more LEOs and you can update that as it goes and obviously update the software.
Much harder to update the hardware, but you can't send new satellites up. And if it gets super cheap, maybe that's worth doing. It avoids some of the pitfalls on the power side. Unlimited power, with solar in space and certainly cooling space is pretty cold. So not an issue there. So just some things to think about. I think it's early days for that.
I think people are in the testing phase that's not commercialized, at least that I could find. But I do think that's something worth paying attention to, data centers in space. And again, when you get those costs down, Kuiper Project, connect it to Amazon. And certainly the Falcon 9, which is a beast. 80% of, you know, mass to orbit is on a Falcon nine right now.
And SpaceX is dominating that. And you have Starlink. And so pay attention to those things. SpaceX private company. So we don't have access to that as public investors. So lots going on. Back to the to wrap up here, back to what's happening overall market still you know, going kind of sideways, slightly down. Nothing big right here.
Both less than a percent, .19% on the S&P in the Nasdaq point 3% minus September 30th here. So not a big deal. Let's really talk finish with the year to date numbers again. So lots of things all over the place. Tariffs, Liberation Day, you know new models coming out, AI revolution, all this things all these things are happening.
Government shutdown looming, the market, interest rates right. Recently being cut market year to date S&P 14.3% positive. The Nasdaq 17.5 positive. It's been a great year so far already. More time to come. We have a full other quarter to go. But if you've been an equity investor, which we encourage, everybody really should be participate in America, participate in these companies, participate, and owning a slice of a business is and that's how we think about it.
It's been good so far. Time will tell. There can, you know, can go off the rails. It can go up further. We'll have to wait and see. The the interest rates are being cut. The AI revolution is on. I would say make sure, you know, for further research, make sure you're paying attention to AI with Apple, with Amazon obviously state track of Nvidia.
But the little nugget for today is going to be data centers in space, and we'll leave it there. Thank you for watching this episode of Market News with Rodney Lake we'll see you on the next one.