Episode 70 | AI Deals, Market Momentum, and the 10-Year

In Episode 70 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, delivers a comprehensive market update, highlighting Microsoft, Nvidia, and Anthropic’s major AI partnership, rising investment pressures across the sector, and comments from Google’s Sundar Pichai on a potential AI bubble. He also notes Jeff Bezos’s Prometheus venture, an upcoming Saudi Arabia state visit tied to a possible F-35 deal, expectations for Nvidia’s earnings, and the continued outsized influence of the Mag Seven. Lake reviews the strong one-, three-, and ten-year returns of the S&P 500 and Nasdaq, examines the stubbornly high 10-year Treasury yield and its impact on mortgages and homebuilding, and mentions Bitcoin’s recent pullback, ultimately encouraging investors to stay focused on long-term fundamentals, earnings growth, inflation trends, and key AI developments as markets continue to deliver exceptional multi-year performance.

Chapters

• 0:00 Introduction
• 0:58 Microsoft, Nvidia, and Anthropic Deal
• 4:55 Prometheus
• 5:49 MBS Visit from Saudi Arabia
• 6:32 Nvidia Earnings Announcement
• 7:43 S&P 500 and Nasdaq Indexes
• 11:48 The 10-year
• 17:28 AI Bubble
• 19:51 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. Today's episode, we're going to go over a market overview, just like we do at the beginning of our classes. This is a GW Investment Institute podcast coming to you from the George Washington University School of Business right here in the heart of Foggy Bottom, Duquès Hall, Duquès family studio.
Thanks again to the family. Here we go. So what are we going to talk about? A variety of different things. Some of those things have to do with what's currently in the news, and some of the things that we've been thinking about all along. Good news is, since our last episodes that we've aired, the government is back open.
Good news there. Let's hope they keep it open. Cooler heads continue to prevail. And they can get some stuff actually done. Let's see. Back to business. All right. What's happening in the business world? Well, there's a there's some big news that's coming out just today. So we're recording this on 11/18. So November 18th. And this is a tie up.
We talk about all kinds of things that happen with AI. But this is a tie up between Microsoft, Nvidia and Anthropic. So up to $15 billion that's going to be invested by Microsoft, Nvidia, and a commitment from anthropic to spend $30 billion on computing capacity from Microsoft Azure. So now this there is, you know, a little bit of, consternation from the circular type of deals that people talk about, these lazy Susan.
And so I do think people are concerned about that. And you heard recently probably the news that, well, OpenAI has these $1.4 billion commitments. And where's really that money going to come from? $1.4 trillion, excuse me, in spending commitments, you know, and, you know, 30 billion, let's say, in projected run rate revenue right now that that is, you know, a concern and so, but this deal brings anthropic, you know, side by side, with OpenAI and Microsoft.
So, you know, Microsoft invested 13 billion in OpenAI and now is moving to have this investment in Anthropic. And so I definitely I think that the market is changing and this relationship between Microsoft and OpenAI, maybe it seemed fractured. Maybe it seems, that, you know, there's a little bit of push, a little give and get right now, in that relationship.
And maybe it's Microsoft spreading its bets and not wanting to be tied to, one, only one of the large language models. And, and it looks like Anthropic, for the most part, has been a bigger leader on the enterprise, versus OpenAI and OpenAI certainly has had a bigger success, in the direct to consumer, setup. And so we'll have to see how this plays out.
I do think it's worth paying attention to, and some of the er and Sundar Pichai, which will talk about Google here in a moment, the CEO of Google talked about this recently that there could be a bubble in these AI names. And so I think this is worth watching how these deals play out. And do these companies like Anthropic, which Claude is their primary model, do they get the revenue that people are expecting?
And I think that's a big challenge. From where they are now, because the numbers are just so high, right? The number of dollars being invested is so massive. But really, nobody wants to lose this AI race. And so you're seeing this flood of money come in. What you know, happens, anybody's guess, right. This is the build out of the internet.
The people compare that to the railroads. If you go back further and you're adding all of this capacity and it's not clear, you know who the winners will be. Now, what I think most people, and why a lot of this money is getting spent, think is that there will be winners and losers. And there will be real productivity gains that come from AI.
And that's already happening already in other things that maybe we're not even thinking about. And so the real world applications, for example, would be something like Full Self-Driving from Tesla. As one of the most notable and one of the things that people can use right now, you can you can go out and buy a Tesla, and you can use the 14.1.4 Full Self-Driving feature, and you can see for yourself, you know, what kind of progress do I think this is making?
And it's it's it's making quite a lot of progress. And that's their own real world AI applications. And so you can think to yourself, well, what you know is the productivity gains from that. Well, if people don't have to commute, if they get in the car, and obviously they can use that time working on something, sending emails, you know, having a zoom call with someone that makes them, a much more productive person and or just sitting and thinking and being more relaxed and using that time productively to think about the things, they think that they need to do or think about solutions for problems.
In any case, it frees up that time to do something different, to be more productive, to be more creative and all these other things. And so that's just one slice of this. But the point is that people do not want to lose this AI race. And so you're getting all this spend coming in. And I think it's important to keep tracking.
But again a big tie up Microsoft Nvidia and Anthropic here. In other AI news here. Jeff Bezos you know, raised over $6 billion. That's coming into a, including some of his own money. Prometheus. There's not a ton of news on this. And so it's a real world AI hear aerospace and manufacturing. And so we'll have to see how that plays out.
He is actually stepping into the co-CEO role in this. This is not a public company. But obviously, Jeff Bezos is still the executive chairman of a big public company that we've talked about here a lot. And one of the holdings in the Investment Institute, which is Amazon. And I think again, it's really worth watching what's happening in this space.
Make sure you're paying attention. And obviously if you're watching this channel. Thank you. Number one. To the people listening on the podcast and people watching on YouTube, I think it's important. And we are covering AI, maybe every week at this point. I don't know if it's every week or not, but it's a lot because really, that is what is topical.
Some of the things that are happening in the news. Let's move back to DC. You're going to have a visit. It's that I think a quite an official state visit. From MBS, from Saudi Arabia, at the white House. And so rolling out the red carpet, they're talking about, you know, the F-35s, these might be sold from Lockheed Martin to the Kingdom of Saudi Arabia.
And so we'll have to see, that's only one part of this. And the kingdom of Saudi Arabia has been, pushing hard to diversify its economy away from oil and gas. And something like 50% of it is, more diversified. Now. We'll have to see how, again, that all plays out. But we're tracking again. That's just topical happening in the news here in the next couple of days.
Another thing we're recording on Tuesday here. 11/18/2025, as I mentioned, and the big news on AI is coming tomorrow when Nvidia will announce earnings. And so, we'll have to catch you up on a future episode, for that. However, I do think if you're listening to the episode when it comes out, you'll already know what happens.
And, and we'll catch everybody up on on the episodes when that does happen. But I do think, obviously this is a bellwether in the AI game, and it's really that, along with the other Mag 7 companies, has really been the driver in this. And if you read our quarterly report, thank you, Kaitlyn Johnson, for the most recent quarterly report for the Investment Institute, you'll know that a third of the S&P is now from the Mag 7.
And now half, let's say the year to date returns. Through the September 30 third quarter, about half of the returns. The attribution comes from those names. And so it has been a big driver, and it's a big driver on those mag 7 names. And so again, I think you got to pay attention. I think it's well worth watching.
And I think you've got to be laser focused, as an analyst, as a business person, as an investor on where the market is going, some other things that we just want to touch on. Let's get on to some, you know, where are the indexes? We try to catch everybody up on some of these general things. What has the S&P been doing.
Obviously you're getting a little bit of a pullback now. And you know some would argue that this is a little bit healthy. And so when but when you look at okay well what are they really the year to date numbers for the S&P 500 and the Nasdaq the two big indexes that re watch again this is through November 18th when you talk about okay what's the year to date number S&P 500 13%.
Total returns. These are still excellent numbers. Again you're having a little bit of pullback. And some would say well this is probably healthy. You had to be some many times people if you look at this, you know, the data over time October tends to be a tougher month. And that wasn't the case. In 2025.
Had a very good October, maybe October, November, have switched spots and we'll have a Santa Claus rally in December, as many people talk about. But the Nasdaq also holding up really well even with this pullback 17.2% through today, that's still an excellent number. And so really you know excellent numbers. If you look over the last couple of years and okay let's talk about the last three years then.
Right. You know one year could be randomized. But those are the year to date numbers. And so let's look at the last three years from 2022 to 2025, through, you know, when we're recording this 11/18, obviously the specific date maybe not as important, but the annualized numbers here are fantastic. Right? The annualized number for the S&P 500 over that time period is 20.07%.
So a 20% return. And by the way, Nasdaq 28.95, almost 29% annualized return. So these are crazy numbers, right. And so what does that mean on the total return. The total return then or for the S&P over that period 73% and 115% for the Nasdaq. So these are excellent numbers. And let's go back a little bit further.
Just let's what's the context here for let's go back ten years. Right. When you go back ten years, the annualized numbers S&P 500 14.7% and 19.95% for the Nasdaq. And so S&P again, 14.7 Nasdaq 19.95. These are ridiculous numbers really. When you talk about okay if you're compounding at these rates, you're going to do exceptionally well if you stay invested.
And obviously there's a bias in tech in both of these names. There's a bias in tech coming from the S&P as the market cap for the Mag 7 effectively get larger and become a bigger proportion of the index in the Nasdaq, obviously, is tech heavy, by design. And so when you when you think about, the type of returns that you're getting from these indexes for active investors, this is challenging to beat.
But if you look at our quality portfolio Investment Institute, our students have been doing a great job and continue to outperform. You never know when you'll give this back, but great job by our students and congratulations. Now, what are some of the things to think about if you're thinking about how do we actually outperform what you have to be concentrated, at least in my mind.
And so you have to for us, pick your winners and try to stick with them as long as you can. If you think they're going to continue to do a great job, some of those names would be, for example, Nvidia, Microsoft, Visa. These things have done great. Google, Costco for us as well. And so you want to make sure that for us we're investing in these high quality companies again not investment advice entertainment purposes and educational purposes only.
But when you have such exceptional returns, it's even hard. On the index side, it's even harder, more difficult to outperform that, this puts, by the way, our students in the top 15% of money managers in the last ten years. If you read our annual report, fantastic job by our students. They continue, applying our framework.
Business, management, price valuation, and balance sheet is a simple framework. You can do it yourself, and for, for companies. And I think you should if you're, if you're managing your own portfolio, again, not investment advice, but it is a useful framework to get you started.
All right. Now let's take a look at we're going to jump around a little bit on this episode. But let's next take a look at what's happening on the ten year side. What's happening on the ten year excuse me. So it's stubbornly over 4%. And so if you look recently here the highs and the lows, the high 11/14 here you're looking at, oh, you know, well over four at 4.7 is the ten year government, and the low here, at 10/22, and that is 3.9.
And really now you have 4.1. And so it's again, it's been quite stubborn here around this 4%. And, you know, many people are thinking, okay, how does this get under, get under four sustainably. And then why do we pay attention to this? Well, number one, I'm sure for our seasoned viewers here and people that are investors, this is the discount rate or this is the portion of the discount rate that sets, you know, the rate for all of our discounted cash flows.
Which of business is the present value of the future, discounted cash flows. And so that's helped set that right. So the lower that is, the higher the present value, the lower the discount rate, the higher the present value. And what else does this do? This is a key driver for the 30 year mortgage loans. And there's 50 year mortgage loans out there as well.
And so that is a maybe for another episode. But an interesting topic, to dive into. Haven't, thought a lot about, about those things. But just so you know, we may talk about that, but when you talk about the 30 year rates, they have dipped, lower 6.3. And so that has been good. But the housing market, depending on who you ask, the residential housing market is potentially in a recession.
So that has knock on impacts from names like Home Depot and others, where you're not going to get the same level of spending that you would otherwise. And so I think people are looking in certainly the home builders people are looking at and we own, Pulte, for example, in our portfolio. It right now may change our stock pitch date is upcoming here at the end of the semester.
So, we certainly will have some pitches that may impact our current holdings, but what's going to happen with the homebuilders? Well, obviously, if you get lower rates, you would think that they could accelerate. We'll have to see how that all plays out. Right now. You can probably say that market and the knock on markets from that.
Again that's the home improvement market and all these things. Because you know what sometimes drives the home improvement market is people refinancing and getting home equity loans as part of their package and putting that money back into their home. So that means upgrading their kitchens, adding in additions, upgrading their bathrooms, putting new floors and all these kinds of things that help spending at a Home Depot, at a Lowe's in general home improvement.
So, it's been stubbornly high back to the ten year at just over 4%. And so we'll have to see how that shakes out. And right now the Fed, is, you know, being a little bit more hawkish about this December meeting and what it likely means for them to lower rates. Excuse me, to take a sip of water from the GW Business School mug here.
Merch available. All right. So back to what's happening in the markets. All right. So, clearly there's a there's quite a lot going on. When you think about the news overall. Excuse me, but a lot of it remains, you know, involved, with I, another thing worth mentioning, which we don't really talk about, too much.
And we're certainly not an expert that we can provide a link, to somebody maybe, who is, or have a guest on, in the not too distant future, somebody who is an expert, in the world of cryptocurrency, is Bitcoin has pulled back considerably. Now, some people would say, and we can run the correlations and report back on this, that really the Bitcoin in particular is really an AI trade.
And it's really highly correlated. And with the risk on I don't necessarily know. But in any case just a report. The news here. Again, we don't spend a lot of time thinking about cryptocurrency, and we don't really have any positions right now that are related to that. Even some publicly traded companies that have significant or let's say, dedicated exposure to that, like a Coinbase, you know, so we're not really in that game quite yet.
We're always looking to get educated on on new businesses. But Bitcoin has pulled back pretty, dramatically, off of its highs. But look back to the the equity markets, which is, our principal concern. Again, you certainly had, really excellent returns overall. People are, you know, concerned about this minor pullback. You would say that potentially this is healthy.
For the market. Again you're getting you're getting the indices all pointing back today. Excuse me. This is 11/18. But if you look at any of the numbers that we talked about, the year to date numbers, at 15.44%, and the 20% for the Nasdaq and the one year numbers year over year that we talked about, 13.40% in 20%, for the Nasdaq.
And just going back to the year to day numbers, the year date numbers, you know, still exit, right? 15, almost and a half percent, 20.21%, for the Nasdaq, respectively. These are still excellent numbers. And if we all said, okay, this ends the year, and these are, these are the numbers I think many people would be excited to book numbers.
For the for the year that look like this. Now, what happens between now and the end of the year? It looks like October and November have switched spots. You're getting a little bit of a pullback here in November. Maybe we'll end up with this sort of so-called Santa Claus rally in December. That's not really our concern.
As long term investors, what we are concerned about is do we think that these earnings are sustainable, for these companies overall, most companies have been beating on the earnings side. But I think one of the things that people are concerned about and Sundar Pichai, who's the CEO of Google, mentioned that, you know, there could be recently there could be a bubble in AI.
Now, the valuation on Google in particular, or alphabet is the parent company, is not exceptionally high and certainly not way above market. But you certainly have these names, that have AI, you know, wrapped up in there and in the valuations, you know, are relatively high. Now, Nvidia not so much. The case is for when you think relative to what's the valuation for Cisco Systems way back in the tech when people talk about well, this is a little bit like, you know, the tech bubble, in the late 90s and early 2000.
But if you think about okay, well, what's the what's the, you know, premier company right now in the AI trade, that would be Nvidia. I think people wouldn't dispute that. And if you look at okay, well what's the valuation for Nvidia. The forward is 40 times. So this doesn't seem crazy right. That's a high valuation for sure.
Let's say 25 times is the market. But that's certainly not a crazy valuation. And so I think you have to put this into context with other events. Now, I think the concern that we led off the show with is, for these deals between these companies and when you and again, you go back to the deal that that was announced today, between Microsoft, Nvidia and, and Anthropic in the way that the deal is structured.
You know, people I think are rightfully, thinking about what is the impact if these companies then don't grow their revenue. So if it all works out, anthropic produces, for example, in this case, and they get the revenue, they get the enterprise clients, that are not both Microsoft and Nvidia, and they continue to grow that business. Well, this will be money well spent, for anthropic, the $30 billion that they're committing to compute on Microsoft.
And obviously Microsoft gets that, however, it's money well spent for the three because in time well spent for the three, if they can grow their clients outside of that. And really, again, the anthropic has been much more focused on the enterprise side than ChatGPT and OpenAI, as a counterpart. And so I think this is, again, back to why people are concerned.
And Sundar Pichai mentioned there could be a bubble in this AI territory. I think it's worth watching. So to wrap up here on this episode, again, AI continues to dominate the news. But if you look at, you know, the year to date numbers, 15, and a half, approximately for the SP, 520 for, the Nasdaq and the one year numbers, 13 and 2051, the total return.
But then go out and think, okay, well, what are the what are the three year and ten year numbers? The three year numbers are analyzing at 20% for the S&P and 29%, for the Nasdaq. And you go all the way up to ten years. And these are exceptional returns. They remain exceptional 14.7% for the S&P in 1995, for the Nasdaq annualized.
And so the returns for the equity markets have been good. And by the way, these companies have continued to grow their earnings. And so that as an analyst, I think you should be paying close attention to pay attention to the AI trade, and the AI investments and how this is all playing out. Pay attention to those companies, pay attention to earnings overall.
And are these companies actually growing these earnings? And obviously, the labor market you should be paying close attention to as well. And then inflation continues to be a piece that we have to monitor. Some things are down and some things, remain stubbornly high. And the 4.1 being speaking of stubbornly high is the ten year number that we'll keep watching.
So again, watch the AI trade returns have been generally good. The one, three, five, ten all generally good numbers there for the S&P and the Nasdaq. Company continues. Companies continue to grow their earnings. Very important for us to continue to pay attention to that for the long term. So invest for the long term. That's the end of this episode of Market News with Rodney Lake.
We'll see you back on the next one. Thank you.
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