Episode 82 | Big Questions for Big Tech Amidst Market Uncertainty

In Episode 82 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, examines year-to-date performance across major indexes, the role of AI in driving volatility and price discovery, and current headlines that are defining the market. He discusses long-term strategic questions facing big tech companies, including Amazon’s significant AI capital expenditures and AMD’s multi-year deal with Meta. In macro news, Lake reviews moderating inflation, tariff uncertainty following the recent Supreme Court decision, and persistently high Treasury yields, which are affecting mortgage affordability. The episode reinforces the GW Investment Institute’s BMPB Investment Framework as investors navigate rapid technological change and ongoing market uncertainty.

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. We're coming to you from the George Washington University School of Business.
Duquès Hall. Duquès family studio. This is a GW Investment Institute podcast, informational and educational purposes only, and hopefully some entertainment. All right. So today's episode is going to be about a general market update. There are so many things going on. We’ll date it, just so you let you know, it is the 24th of February. So the state of the Union will be this evening.
So that's not going to be in this episode, but it's going to be this episode's coming out after that. So we'll have to add that to another episode as an update. But there's plenty of things that are happening, with the administration and certainly with the markets to talk about, with the administration, meaning that it's impacting the markets.
And we will get to that. So let's just give a general check in here kind of a year to date on where some of the indexes are, where some of the companies are overall. And so as a reminder, our students manage a little more than $11 million of endowment capital. That's part of the overall endowment for the George Washington University.
Most of it's fundamental analysis. Some of it's, quant fund, which we're running this semester. Good luck to all of our students. They're building their models now, which is a lot of fun. We also have a venture class, but not a fund. So we're doing a lot of cool things here on campus. And I think our students are benefiting from that hands on type of experience.
Plus, their returns, by the way, have been exceptional. We never know how long that will last. So we're grateful when it does. But it's been a long period of time. Read our quarterly reports if you go to our website. So let's dive into some of the indexes. So the biggest index of all that people talk about the S&P 500 the year to date number right again February 24th is when we're recording this to data here.
So you know we're just you know, getting towards the to the first quarter here. And the S&P, the total return for the year to date is 0.62. So not fabulous. Not terrible. But certainly not I think what people might have expected, with the good GDP numbers coming out of third quarter. And then we had that soft GDP number for the fourth quarter.
And so I think that's impacting the markets. Those are some elements. And certainly I think the AI trade here has done a little bit of a reversal. So if you look at and then maybe I'll just mention before we talk about the AI names, the Nasdaq. And so that's reflective of a lot of those companies. Although the S&P is heavily weighted towards tech as well.
And many people would say that. So do the AI play, you just really need to add the S&P. And maybe you own the S&P in the Nasdaq Non-investment advice. Because they hold so many of the names like Nvidia, like Apple, like, and people would debate if Apple's in the game or not. Like Google. Especially the S&P and the Nasdaq.
The Nasdaq tech weighted in the S&P is, is market cap weighted. So those bigger companies are going to be a bigger portion of that portfolio. So you get to participate even though you really don't. You're not picking the individuals. But you benefit from all the things that are happening. So let's move on. What's happening on the Nasdaq?
-1.24% total return year to date again February 24th, 2026. And so not a great start to the year for that. Now let's talk about which we've had full episodes on the mag seven for example. How are they doing. So let's do a little check in and we'll mention a couple of those names here. The Mag seven is hurting, right.
And so, now it's not a disaster, but it is almost -5% year to date right now, -4.84% year to date number. So the Mag seven, which accelerated over the past few years talking about, you know, attribution and really driving the returns, for the major indexes and for the markets, they're not doing well this year. And now part of that is that each day anthropic announces, and you know, that you're going to do this, you're going to do that.
And it wipes out software and it wipes out, you know, the legal profession and wipes out registered investment advisor supported software. And, you know, so I think everybody's trying to figure out what's the path forward, what's going to happen with AI, and everyone's trying to price that in. So when you talk about for example, anthropic announces that, you know, they're integrating different aspects, that could impact some of the traditional software vendors, you know, like a Salesforce, the software names sell off and have sold off now.
And people are thinking like, well, if you think, as we do on our fundamental side, that a company is worth the present value of its future cash flows, and in that calculation is a terminal value. Now, both the terminal value and those expected cash flows can vary dramatically if the business really has, you know, an encroachment from AI.
Now, that doesn't mean that those businesses necessarily are going to go out of business from one day to the next, but the market's doing the price discovery of trying to decide it, is this business going to be impacted? At what level and what is the long term impact? And I think it's harder and harder for all of us, including me as analyst, business people, investors, to figure out what actually will be the impact of this.
Now, one of the biggest sectors that got hit is on the cybersecurity side. Again, another anthropic announcement about integrating security. And CrowdStrike sells off 10%, for example. And to me, you know, that seems like an overreaction. But maybe it's not. Again, it's tough to tell on these things, but it is also hard to understand that enterprises are going to switch from one to the next.
Now, again, maybe that's not the price discovery. What's happening? Maybe the price discovery is that long term, that these companies are going to be challenged. Now, to push back the other way on that is that well, that also assumes that these businesses are not going to do anything about it. Right. And so, CrowdStrike as an example, cloud first.
And so, you know, maybe they're going to come up with their own solutions, to press back against, all the advantages and frontier models, for AI that are encroaching on their territory. And so. Well, I think we'll just have to see how that all plays out. But, pricing that is challenging. All right. Now back to some other updates on some indexes and where we are generally in the market.
So next up here, Apple. So Apple part of the mag seven but actually has done okay. Not not great. But certainly not, you know, -4.84%. It's, you know, plus 0.83%. So not not having a terrific year, but certainly holding its own. And I think people are trying to figure out how is Apple going to fit into this ecosystem.
They did the deal with Google, for the AI. And hopefully Siri, by the way, gets a little bit better. And everybody upgraded, including me to the iPhone 17. So with Gemini possibly Siri will tell you something useful. Well, we'll have to see. We're patiently waiting Apple. So get Siri upgraded as soon as you can.
But that official deal was announced recently and and it seems like Apple is at least finding a path. And they're going to continue to own that. The device, that ecosystem and that network effect has been enormous. And it's created a ton of value for Apple and Apple shareholders, including for us, at the Institute, actually, that's Apple is one of the first companies that we bought way back when 2005, long ago.
I know it looks super young, but I was there, on day one when we launched these things, as out of the investment office. And we bought Apple back then, and we haven't sold it. We did trim it, which was a mistake. Long ago. But, we've held on to a big portion of it, and obviously that has maybe it's not obvious to everybody, but that has served us well.
You know, it's ups and downs, over time. But Apple has served us well over that time period. Big benefit by the way of being long term shareholder compounding returns. And so let your winners continue to win for you and let the great companies and a great management teams, you know, do their job again, not investment advice.
And so but Apple has been in this challenge situation right now where they don't have a frontier model. And people are concerned. Well what does that mean, you know them versus Google, even them versus Amazon. Amazon doesn't have their frontier model. But certainly they have their own chips and so does Apple. And so, you know, everybody's wondering, okay, well where are they going with respect to to the AI game?
Excuse me, I'll take a sip from my mug here.
School of business mug. All right, so next up here, again, general market update. We're checking out some names here overall. So Google here. How's that been year to date again February 24th, 2026? -1.28%. So again, not a disaster. But it's, you know, not had a great run. Again, but I think everybody's trying to figure out what's happening with everything that has to do with AI.
And certainly they're in a very good position. They're in a very good position, because they have probably one of the few vertically integrated setups. Now they're not making the chips. Taiwan Semiconductor is, but they have their own TPUs. They have their own frontier model, Google Gemini, they have their own data centers, Google Cloud, and they have their own suite of enterprise products and consumer products.
You know, the Google Workspace as an example. And so people are using Gmail docs, sheets, and integrating Gemini into that. And so NotebookLM has been another popular feature. If you haven't used that, I encourage you to check it out. We do own shares of Google. But not investment advice in not pitching, for you to do that specifically.
But, you know, it's okay. And I think the vertical integration is going to be a big beneficiary of Google's going to be a big beneficiary. Having that vertical integration. All right. Up next, one of the things that I think is well positioned again, not investment advice is Amazon. But if you look at the year to date numbers, well it's been a big challenge.
So what's the year they need number for Amazon? It is -10%. And so that's a very tough start to the year. And if you think about where Amazon is you know obviously AWS is a huge part of that. But you think about all the robots in the warehouses in the click and things show up to your house.
I feel like that's not going to slow down. It seems like that's going to speed up and they're going to make that cheaper and cheaper and cheaper because they're going to replace people with robots. So AI is going to drive that robotic revolution, on that side of the house and, and AWS continues to get bigger. People, lots of people are obviously Prime members, and they take advantage of that sort of a Costco membership style, which is a great product that they created, years ago.
And it's, you know, been a huge benefit to the ecosystem that Amazon has built. And I think a lot of people are locked into to that ecosystem, just like they're locked in as consumers, just like they're locked into the ecosystem with Apple in a different way. You have Amazon Prime, you're like, oh, I need this, I need that.
Well, I'll set a subscription for that. I'll, you know, figure out how to get that delivered to my house. That's way more convenient for a lot of these items. They're still going to the grocery store, but they own Whole Foods. So if you go there, you're still participating in that ecosystem. So they're in a different spot. And then of course, that's on the consumer side.
But AWS on the business side really has been a behemoth, has been a huge success story, and is really leading this. And they have their own chips. The Trainium chips. And they set up a full data center out in Indiana that is for anthropic, to run the models all on Trainium chips. So they're certainly capable, and they started that a while ago.
And it is quite interesting what they're doing. So again, worth paying attention to them if you're not already. -10%. You know, the market is definitely punishing them. And a lot of this is on the AI spend, which you covered in a different episode. But these companies are spending enormous amounts of money. Amazon, in particular, 200 billion.
But again, I mentioned this before. If they are playing to win, which I think is is the right way to do it. But again, just kind of checking in, where is everybody right now. So let's do some other check ins here. So tariffs. Well Supreme Court decided last Friday 6 to 3 that you can't you know the president and the administration can't use the mechanisms they've been using.
They then quickly announced and other ones 10% could go to 15%. And the market was pricing them some uncertainty. But if you look at the market today again Tuesday 2/24 the market's bouncing back a little bit. So I think everybody's trying to figure out what's going to happen with this. Again, State of the Union will be happened tonight.
Another big thing Nvidia is going to be announcing their earnings this week. And so unfortunately that's going to happen after we record this and will definitely give an update in a future episode. And obviously that's going to be a big driver of what's happening in the markets. And so overall, the markets have been mixed. But to start the year.
But again, if you look at the numbers, certainly they're not terrible. And I think with everybody trying to understand what uncertainty actually is in the market and how you're going to price it and how you're going to how you're going to figure out, you know, what to include in your portfolio, what needs to be diminished in your portfolio?
Well, I think that's we're all trying to really figure that out. And so again, you had a sell off, and you know, now it's pulling back some other news which I think is important and certainly related to AI. AMD just announced a deal with meta. So this is a blockbuster multi-year deal. And so really interesting here.
And so I think this falls into the category, and so AMD will supply six gigawatts of GPUs to Meta and its AI data centers. And so there's this performance based warrant for the shares, for shares. And so I think, you know, this is an interesting set up here. You know, lots of people talk about this as these round trip deals or vendor financing that happened in the WorldCom.
and Enron days. And so that's kind of what gets mentioned sometimes in the same breath. Now these are the same types of companies. This is not the same situation. But I do think as an analyst, business person, investor, it's worth paying attention to these deals. Because if you get these cashless, revenue deals, you know, at some point it seems like, you know, how is this all going to work?
How is this all going to play out? You know, I think it's really interesting. And again, everybody's playing to, not everybody. Many of the companies are playing to win. Meta is playing to win. AMD is playing to win. In this case. And so we'll have to see if that risk reward is is the right calculation for them.
But I do think again business person investor analyst you should be paying close attention to how these deals are structured. And I think we should all be paying attention here, going forward. All right. Some other check-ins here for the general market overview. Inflation. Right. That's been a huge concern. But it's been trending down for the most part.
Staying flat nicely here January CPI here at 2.4% year over year, the lowest since May of last year with core at 2.5. So that's pretty good. The Fed's target is 2. So we're not quite there yet but inflation and up, you know, not so bad here. So I think that's generally good. And I think if you're looking at unemployment also a very solid number in January added 130,000 jobs, unemployment at 4.3.
You know anything really under five full employment here. So pretty good numbers. That doesn't make everybody feel better. Especially those 4.3%. For them it's 100% unemployment. Right. And so it depends where you are. But as a general economy, less than five full employment. So not too bad. Obviously, some other parts of the market here, that I think are worth worth noting here.
The 10-year here at 4.03 and 4.08 and so really hard to get that number, under four. So I do think, that, you know, that ten year number has been stubbornly high around that 4%, which really has driven, you know, the 30-year mortgages to stay a little bit higher. They've come down a little bit.
And affordability is a big part of that. And Trump made an out some of that or talk about some of that in the State of the Union address, this evening. And so but that's a big thing. And I think a big unlock if you could get the ten year down, you could definitely get, you know, more affordable mortgage rates, which could help unlock some of the mortgage market, then unlock the housing market.
So I do think, is absolutely worth paying attention to. All right. So going to round back on a couple of things here. All right. So back to the market numbers. And so it's been a mixed year I think everyone's trying to figure out the AI game. Some hot takes there is that the price discovery is, you know, happening every day all the time.
And again you see big moves. And you've seen really the AI trade charge ahead the last few years. And now again, if you look at the Mag seven back to that minus -4.84%. Excuse me, the year to date through Feb 24 here, 2026. What's going to happen from here? None of us know, right? That's that's where we gotta put our analyst hats on and try to sort through these businesses.
And I think some of the things and we talk about the framework, business, management, price valuation, and balance sheet, that's the framework that we use for the investments to which on the fundamental side, not necessarily some of the quantitative models used in the quant, but not necessarily they get to some ideas in different ways. But if we use that model on all of our fundamentals, we can talk about sort of general setup here for the economy.
On the business side, obviously, we continue to look for businesses, whether they're AI or not. And certainly on the business side, you want them to be pointed in that direction. And so just like anything else, I do think this is a transformational technology. Again, not investment advice, but it seems to be, generating lots of productivity even in the short term.
And then on the so on the business side, look for the high quality businesses, look for the look for the businesses that are that are enabled even further by this technology and saying, well, how do we best position our portfolio for those companies and how do we get out of the way the ones that possibly are not going to benefit or are really going to get pushed aside on the management side, what are the teams really driving for that?
What are the teams that you think really understand AI? Its adoption, how they're using it, being forward thinking, you know, how are they going to embed that if they haven't already, if they're not directly an AI company? You know, I think thinking about that, making sure that when you listen to I think you should listen to, by the way, the calls, the quarterly calls, listen to management, listen to the earnings calls, try to understand, okay.
Well, what what's going on. And the call. Do you think you have confidence that the management team is positioning the company for success with respect to AI? Now, if it's an AI company, you got to dig into the weeds and try to understand you don't have to be an expert. Right? We talked about this in class. To understand Nvidia's business, you don't need to design a GPU, right.
They're not saying like, you got to build the next Vera Rubin, the next version of that for us to be an investor. No, to be a successful investor, you need to understand their business, their business model, who are their customers. And that's on the business side. And then the management, how are they positioning the critical to understand the management and what's the capital allocation, for that.
And that's critical to understand where are they investing the dollars. And we talked about the $200 billion spend at Amazon piling that into AI. Again, not investment advice. I think that's playing to win, Google playing to win, Microsoft playing to win, Tesla playing to win. And so capital allocation from those management teams playing to win the AI game, which I think it is the right move now whether it should be a little bit less or a little bit more, I don't think anybody's saying a little bit more at this point, but should be a little bit less.
That's we'll figure that out. Now on the price versus valuation. Look very hard to decide on that. But the market's really trying to understand okay what's the future value. What's the present value of this future cash flows including that. What's that terminal value? Very challenging right now to understand because things are shifting so much now what's the right multiple.
Because if the business gets hit, maybe the multiple needs to be lower, right. They're going to get hit on the earnings. They're going to get hit on the multiple. And so the opposite of what's called the Davis double play. On the upside it's going to be minus minus one the downside. And so you got to think about that.
And then on the balance sheet look we continue to think that AI are not having a clean balance sheet is important. De-risk the company increase your optionality. So make sure when you whatever companies you're looking at, you know, if you're an equity investor, right, that sits ahead of you and an legal claim and bet for the upside for the company for the equity.
And so to live to fight another day if you don't have a lot of debt or if you have net cash, even better, then that company is well positioned and also well positioned if they are downturns or acquisition potential, that's where you want to be. You want to be in a net cash position, or you want to be in a good cash position producing lots of free cash flow that you can go out there, and acquire things, or you can go out there and buyback shares if your shares really get depressed.
And so it gives you lots of optionality to have that clean balance sheet. So whether I or not, I think that's good advice there. Well we covered a lot of ground. There's certainly much more that we can do. And there's still lots of things happening. We'll continue to give a market update again. State of the Union happening tonight Nvidia earnings coming out this week.
So we'll absolutely in another episode talk about that. But for now thanks for watching. And we'll see you back on the next episode of Market News with Rodney Lake. Thank you.