Episode 91 | Global Tensions and Tech Innovation Driving Today’s Markets

In Episode 91 of Market News with Rodney Lake, Professor Lake, director of the GW Investment Institute, covers broad market headlines, including the intensifying AI arms race, market leaders, global energy production, and data centers in space. He emphasizes how major players like Amazon, Google, Nvidia, Microsoft, and others are aggressively investing in chips, models, and infrastructure to gain an edge, while suggesting the industry may evolve into an oligopoly. Lake also examines market conditions, noting modest year-to-date equity returns, reasonable valuations, and continued focus on the Big Tech, while raising concerns about pressure on SaaS business models as AI tools potentially disrupt subscription demand. He further discusses elevated oil prices, global energy dynamics, and the evolving role of renewables and electrification, before closing with a forward-looking perspective on emerging themes like data centers in space, emphasizing the long-term implications for technology infrastructure and investment opportunities.

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. This is a GW School of Business right here in the heart of Foggy Bottom GW Investment Institute Podcast.
Market News with Rodney Lake. So what are we going to talk about today? We're going to do a general overview as a reminder disclaimer at the top of the show here. This is for educational and entertainment purposes only. If you need an advisor please seek one. All right. So we're going to do a broad overview. We're not going to talk about a single company today.
But this again is a GW George Washington University Investment Institute podcast here in the GW George Washington University School of Business, Duquès Hall, Duquès family studio, again thanks to the Duquès family. So we're going to take a broad overview of what's happening in the markets. And there is quite a lot going on. Also, just to mention, we're heading towards the end of the semester, so our student pitches are coming up.
We have our quant class coming up. So we're super excited. Those pictures are going to get started very soon. And then the stock pitch days are coming up. And so we're going to really look forward to hear what ideas come out from the models that the students have been building in the quant class and in the class for financial securities analysis for our Phillips Fund.
We're excited to see what fundamental ideas our students are going to have there. And of course, they'll be wrapping up in the venture class this semester too. So thanks again to Professor Collier and Professor Song, Professor Collier for the venture class, and Professor Song for the Financial Securities Analysis class. Finance 4101. All right. So let's get to it.
So a couple of things I think that let's start off with the news that Apple's transitioning. So number one Apple is making a transition from their CEO Tim Cook who's been the CEO for nearly 15 years, more than a decade and has done a fabulous job under his leadership. The you know, the company's market cap has grown significantly $4 trillion market cap.
I think it was maybe around $300 billion market cap when he took the helm there. Not exact, but you're certainly talking about orders of magnitude bigger company under his leadership and really has done a fabulous job. If you remember, way back when, you know, there was concern that, you know. Well, Steve Jobs, obviously pioneer, visionary, founder of the company, you know, what can you know, what can anybody do to sort of fill those shoes?
Well, Tim Cook turned Apple into a money printing machine. That turned out pretty well for well, for shareholders, including us. So it's one of our largest positions. So Tim Cook is going to step down on September 1st. John Ternus, whose head of hardware right now is going to fill his shoes. And so we'll see how that happens. And obviously this is a critical juncture for Apple.
Clearly they've been really doing well on the services business. The iPhone 17 has been a bigger hit than people expected. But one of the concerns that people have is this transition into the AI world. And Tim Cook will remain as executive chairman. So he's not leaving the company. He's still going to be on the board. He's still going to be executive chairman, so he's going to be heavily involved.
But John Ternus is going to bring in new leadership, and we'll have to see what direction he's taking. He's coming from the hardware side. Excuse me. So he is absolutely, you know, ingrained in the culture of products for Apple, which is super important. Obviously that's the big driver. That's the platform. It really is the iPhone and iPad, the Mac.
These are critical for iOS and Mac OS. And so the vision forward, we'll have to see what Mr. Ternus does from here. But I think it's really important to mention that Tim Cook's track record has been really outstanding. And I think, again, if you think back to when the transition started, there was so much concern that no one could really fill the shoes of Steve Jobs.
And now you have similar sentiment. The market seems to be, you know, okay with the news so far. Really, really not much happening in the stock. And so I think time will tell. Obviously there's a transition period here. September 1st is when he's taking over. And again, Tim Cook is not necessarily leaving completely because he's going to remain executive chairman.
So he will still be around obviously there for guidance and support and really try to make that transition as smooth as possible. But I think it's important for shareholders. And if you're a shareholder and as an analyst, business person, investor, to really be thinking about these transitions as we've talked about, management is critical. And I think probably of the components that we talk about, business management, price valuation, and balance sheet is critical to really understand.
So I think, you know, you know, thinking about this is really paramount to your understanding of the company and the future direction of it. So and we'll probably spend some time on this in a future episode. But one of the just talk about really that transition off of the top of the show here at the top of the show.
So let's talk about some other things. What else is happening in the world? Of course, the world is still very much closely watching what's happening with the US and Iran in the Middle East. And you have agreement to meetings happening. President Trump recently spoke actually on CNBC for quite a long time. If dating this 4/21 when we're recording this this morning talking about that they're going to be negotiating this and they're trying to get some peace settlement.
But that has not happened yet. And so until that, you know, is more certain the market's been trading around. Now, one of the things that I will say that the market actually has been quite good and you've actually had a comeback. So pre-war highs are being reached again or have been reached again. And so if you look at where is the market today? Again 4/21, if you look at the S&P, the year to date number, you know we're up 3.5% and you're basically at your back, you know on top of the pre-war numbers.
And so you know if you had to say that we would be in the thick of things here and you'd get back to this number. You know, many people might be surprised by that. And, you know, so the market seems to be saying that, you know, this is priced in, there's probably some type of good outcome going to be coming from this.
And we'll have to see. And if you look at the Nasdaq, the year to date numbers are also similar. You're up 4.8%. But again you bottomed out a little while ago. And so that, you know, maybe the bottom is in. We're not calling a bottom to be super clear, but you're definitely back over the highs from the pre-war.
And so and you're modestly trading off today. But again sentiment still seems to be very positive for what's happening in the markets. Another thing that I'll just mention is, you know, obviously oil price is a big concern. And so all is at $95 a barrel right now or hovering right around there. The Strait of Hormuz is obviously a critical component of the supply chain for the world.
And about 20% of the world's oil moves through there. So global oil production, around 100 million barrels a day, just around number consumption around the same thing, 20% of that. So 20 million barrels a day is running through the Strait of Hormuz. So that's really a critical, you know, gateway to the world if you'd like, for the oil markets.
And obviously people rely on that. Now, the US doesn't necessarily rely on coming out of the Middle East anymore, much more independent given our production profile. Largest producer in the world is the US. However, the price for all is set globally, so people get impacted for that. So if you're paying higher prices at the pump $4 a gallon, for example, you're going to feel the pinch sometimes in that.
Now, the retail numbers that have come out recently say that people are still spending money. So when we talk about the overall market, demand for products and services still seem to be fairly good and the consumer still seems to be spending through this. Now, that could be temporary, and it's something that we have to keep an eye on as, again, investors, business people and analysts.
But the consumer in the US seems to remain strong. Now, where we go from here, I think is anybody's guess. And we have to really watch those numbers closely. If people continue to feel that pinch, we'll have to be careful from that. Related. You know, talking about inflation. So that seems to be stubbornly high. And right now Kevin Warsh is on Capitol Hill actually testifying in front of the Senate Banking Committee trying to get through this nomination process.
And so, you know, that time will tell. Last time he was unanimously confirmed as a governor, not as the chair for the Federal Reserve, but he was a Federal Reserve governor, I believe, the youngest one ever confirmed, unanimously confirmed. Obviously, it's a little bit more contentious now with the other things going on, and we'll we'll have to see.
Obviously, you have the lawsuit going for the building and the cost overruns for the current chair and his term expiring sometime this summer. And so I think it's worth watching, obviously, closely to see how these proceedings happen. I think some of that's obviously going to be some back and forth that write down political lines at the moment. But Kevin Warsh seems eminently qualified.
Again. He was a Federal Reserve governor prior and he was unanimously confirmed then. So we'll have to see. You know, the push and pull there will play itself out. And but, you know, his view right now is that you know that, you know, they'll have room probably to to cut rates. But you know, anybody's guess of what we go from here.
So we'll, we'll have to see. And not saying he's saying that. One of the things that is on top of everybody's minds is this continued AI arms race. So you might have heard about anthropic coming out with this mythos, you know, model saying that, you know, it's not even ready for it's so strong, it can't be used for public consumption because they're finding these vulnerabilities in people's code that maybe was latent for 27 years and people didn't find it.
So we'll have to see how that plays out. You also have a push and pull going on within the government. They say they met with Anthropic. They had labeled them a supply chain risk. So that that's happening. So all these things are happening at the same time that models all continue to get better. And I think lots of people continue to use those models.
As I mentioned, our quant class is running this semester and we're using any students can use any model they want. I will say as a marker here, most of the models that we ended up students end up using towards the end of the semester. Maybe it was probably halfway through that. People use, I think, different things to get started, but it really then coalesced around using Claude and Claude code for things.
So it seems like that was the preferred model. People are using other models to be super clear, but at the same time, it seems like that ended up being a small preference. Connected to that, you're also having this continued AI arms race. And so you have you still have money being poured into this game. And I still think it is a you got to win.
And I think the people that are in there, like Amazon, for example, are playing to win their Trainium chips, their their investments in Anthropic. The same for Google. It's TPUs and their announcement with Marvel as well. So you're really seeing these companies playing to win. And of course Nvidia is also playing to win and has significant market share there already.
But other people are starting to chip away at that and they want to build their own customized chips. But those customized chips they have to perform, they have to they have to make sure that they can keep up. And obviously, the big news that we've talked about in the past is Tesla coming out with their Terra fab and the partnership with SpaceX and xAI.
So we'll see how that goes. They announce a partnership with Intel. And Intel has been doing much better more recently under its new leadership. And all of this really comes down to the demand for chips has gone in one direction recently. And that is up. And it looks like demand for chips will continue to go up in that direction.
Another big name that's in that space that we've talked about before is Microsoft. And Microsoft has been resilient. So you've actually had, you know, a pretty significant pullback recently before the last month in Microsoft. But in the last month you've seen resilience in the shares in Microsoft is now up almost 11% in the last month. So you certainly seen a bounce back.
There are a lot of concerns you know early you know early into the game for OpenAI and their partnership with them and their ownership stake. People were very excited about Microsoft's position, even saying, you know, from the, you know, the scalers here and certainly the big cloud providers that Microsoft and Microsoft Azure in particular was in the lead here, but that quickly eroded and certainly had concerns around OpenAI.
And now you know, is it actually leading you know some people would say that it's a little, you know, not as focused, rather that it as it should be or it can be. And now Anthropic and Grok and others are coming on strong while they're, you know, not as focused as they can be and really giving some of that lead away.
And then, of course, you have Alphabet and Gemini with Google being another huge player, another big enterprise player. And so the game is afoot here. And definitely these companies are really playing to win. And, you know, I think some people thought maybe it's going to be a winner take all that doesn't necessarily look like. And in my current hot take on this, by the way, is that I don't think it's a winner take all strategy that will win here.
I do think that it looks like some of these models are going to perform well in certain areas, in other models will perform well in other areas, and people might use multiple models for different things and maybe there'll be some preferences. And so maybe it ends up more like an oligopoly than monopoly. And so we'll have to see how that plays out.
Or even a duopoly. It looks more like an oligopoly is coming. And probably you're not going to have 20. Maybe that's not the case. And maybe that's the maybe it is the case with some of the open source things, which big caveat there that a lot of the Chinese models like DeepSeek and Quinn, we'll see what happens.
So maybe there's a long tail for specific use cases. And we'll have to see how that plays out. It's really hard to tell right now because, you know, if you fast forward five years, maybe the landscape looks very different. So we'll have to obviously, as investors, business people and analysts really pay attention to what is going on. So, you know, where do we go from here?
Anybody's guess specifically. But it looks more like an oligopoly and oligopoly to me. Again, back to Microsoft for a second. They certainly have done a, you know, much better in the more recent time here in the last month, you know, VIX has been all over the place, obviously with the with the global tensions that we talked about in Iran in particular.
So that's something that I think you have to continue to pay attention to. And anybody's guess what's happening there. A couple other things that I want to talk about is just, you know, the year to date numbers have been okay, right? They haven't been fantastic numbers. And so if you look at the year to date number for the S&P 500, you're talking 3%.
So 3.6%. So these these are not terrific numbers. But they have they've had this bounce back. Now the multiple seem reasonable from here. They certainly don't look to me cheap or expensive. Historically they seem very reasonable. A lot of people would say that they're slightly on the expensive side. But I would say that they're quite reasonable from here, depending on what you're looking at.
And so the Mag 7 continues to be a huge focus. We own a lot of the Mag 7 across many of our GW Investment Institute portfolios. So I think you have to watch for those. I think that people are looking for some of these second derivative plays, like the data centers as an example, the core weaves as an example, as places where, okay, that's going to continue to find really a lot of demand.
However, we have to really think about where is the market going, where is it going in the next year, where is it going in the next three years? And I think it's a big challenge for all of us to really think about, how is that, how is it going to play out over over that time period with things changing so quickly and demand possibly changing so quickly?
For example, some of these SaaS companies software as a service, you know, they've been hit hard in some cases. You know, people concerned about Salesforce, people concerned about service. Now, just a couple of names there. And we own some of these names. And so when you think about this you have to really consider okay. Well you know, what's their business model going to look like.
Adobe just announced partnerships with anthropic and others. And how is that going to work out. How is that going to play out. Adobe's been under a lot of pressure. And I think for some of these companies, they're going to continue to be under pressure because it is in you know, maybe this is also a hot take. Not clear to me how it's going to play out over the next, let's say, three years and what their business model is going to look like.
If you can do, for example, a lot of the imagery in one of the models, like Gemini, for example, or grok that you would typically do in Adobe, you know, why are you going to pay for two subscriptions? You're going to pay for one. And if you're going to pay for two subscriptions, maybe you're going to pay for Gemini Pro and you're going to pay for Grok Heavy as an example.
So just highlight there. So, you know, one of the things that also is a big concern and I brought it up before is the oil price. And so right now you're hovering around $95 for WTI which is which is West Texas Intermediate. We talked about the 20% going through the Strait of Hormuz. I think it's a big challenge for for everyone to think about okay.
Well what what it looks like from there. We certainly didn't have this wide, you know, EV adoption in the US that some, you know, politicians possibly hope for in the past. But you're certainly having an increase in demand. And I think that puts some downward pressure on that in the long term. And because you're taking, you know, net barrel marginal demand off the market when you do that.
However, it's not so widespread in the US like it is, for example, in China. So in China, you know, they could potentially be less sensitive to that in other energy sources. Just to mention here, obviously there's big opportunities for solar in particular, I think globally. And I think that's something to watch, not investment advice as we talk about here.
But certainly if you if you look at today's situation with respect to energy and you think about, well, obviously we're much more independent on the oil and gas side than we've ever been in the past possibly or maybe not ever, but certainly at one of our strongest periods here in the US. But those prices are set globally, especially oil.
Natural gas is set a little more regionally and we have plenty of natural gas. But with LNG being more pervasive, liquified natural gas, natural gas is becoming much more of a global product. Not in the same way that all is. That said, you know, that sets the price. And so even if you're producing that domestically, it sets the price.
When you have that traded globally. Now electricity, if you're running everything through solar, that price is set much more domestically because it's produced and consumed typically in the same place. You have some international electricity when you're crossing borders in Europe, for example, you're crossing from Canada to the US, for example, or Mexico in the US. So, you know, there's some international, let's say, transmission lines that move electricity across, but typically it's a much more localized product because at least for the moment, you produce and consume very locally.
And even when you add in batteries, you're adding in those stationary batteries, grid scale batteries much more locally. So I do think it is important to pay attention to that. Another thing, before we close out here for this show that have to mention, because we love talking about it, is data centers in space. I think you got to continue to pay attention to that.
And when you talk about this Terra fab project for Tesla and SpaceX, you got to really take note of of what's happening there. And I think making sure that you understand what are the economics, you got to really get launch costs down to get those things up. And you got to figure out a way, obviously, to get the number of chips way up.
And that's what the Terra fab is doing to get those data centers in space. But one stat to mention is that already SpaceX has 10,000 plus satellites in orbit, already low Earth orbit for Starlink as an example. And so that cadence is, you know, a launch every two and a half days, approximately in 2025 for SpaceX and Falcon nine.
And to get that launch cost down, you got to get the cadence up and you got to get the average payload higher as well. And that's the Starship that's coming online. We'll talk more about this. But the SpaceX IPO is not too far away. People are talking at one and a half to $2 trillion market cap. That would be the biggest ever.
So for another episode we'll talk a little bit more about that. But data centers in space I do think is worth paying attention to. And I do think it's worth spending some time on to try to figure out, okay, well, what are going to be some of the drivers, you know, what are some of those inputs? What are some of those outputs?
What is it going to allow? How is it going to reshape the world? As an analyst, I think it's worth starting to think about those things because I think, again, high tech think that's coming. Been talking about data centers and space. More people are talking about that right now. But those chips are needed. Those launch costs need to come down.
So the cadence for all those things are going up. Blue origin just, you know, had some success, mixed success. And so, you know, if you have another launch provider that can consistently launch, that's going to help. It's certainly going to help pricing. It's going to help competition as well. So worth paying attention to. That's it for this episode of Market News.
We'll look forward to seeing you back on the next episode. Thank you for watching.
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