Episode 93 | AI, Oil Prices, and Q1 Earnings in May 2026

In Episode 93 of Market News with Rodney Lake, Professor Lake, director of the GW Investment Institute, provides a broad market and economic overview amid geopolitical tensions, elevated oil prices, and strong Q1 2026 earnings results. The episode centers on the ongoing AI and semiconductor boom, examining how companies such as Amazon, Apple, Google, and Intel are positioning themselves through capital spending, cloud infrastructure, vertically integrated AI ecosystems, and semiconductor development. Professor Lake also discusses that traditional valuation metrics may underestimate the improving quality and efficiency of modern AI-driven businesses and the future of Berkshire Hathaway following Warren Buffett’s transition from CEO to Greg Abel’s leadership role.

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 Investment Institute podcast. Disclaimer up front here not investment advice, entertainment and educational purposes only.
We certainly hope to entertain and educate. All right. We are here at the George Washington University School of Business, Duquès Hall, Duquès Family studio, right here in the heart of Foggy Bottom. We're going to date the episode because there's so much going on. We're doing a broad overview today, not a single company, but we're going to talk about a bunch of different companies.
It is Cinco de Mayo or May 5th here, 2026. And there's lots going on in the world. A couple of things that I want to mention off the top here. So let's go over some of the big market indices just to get acclimated and let's get ourselves situated. So the market's been, you know, up and down this year.
And so you've had a variety of different, you know moves up and down. So we're going to go with the largest index which is the S&P 500. So what's the year to date number on the S&P 500. So it is 6% now. It's been a wild ride sometimes up and down but back up right now. And so you've had the war with Iran the US and Israel.
And that's obviously been causing lots of tensions. And you've seen WTI be up and Brent up. Right. So it has been over $100 a barrel at times. And certainly that's causing lots of consternation. And people are worried about the inflationary impacts that might have specifically obviously to people driving if you're thinking about here in the US, but you know, all across the world, you know, oil is 100 million barrels a day, production, consumption 20 million of those barrels goes through the Strait of Hormuz, which is obviously in contention right now.
And really people are thinking about, well, how can you replicate, you know, 20% of the market, very tough in the short term. Obviously over a longer term period you can do that. But in the short term, you know, supply, demand, basic economics, what's going to change is the price. So the price is going to be what changes in the short term.
And now there's been a cease fire. You know there's some you know, worries that maybe it's not holding. And there's some, you know, been some missiles fired on the UAE. So we'll have to see how this all plays out. Everybody's playing very close attention. And obviously it's a big concern globally, but specifically to those people who are paying those higher prices.
So anybody that buys gasoline is doing that. Now the US is, you know, effectively self-sustainable for oil and gas, but we pay the global price like everybody else does in the market. So let's talk a little bit about, you know, where we are on the earnings. Well earnings have been very good so far. So if you think about we're in the Q1 earnings season here for 2026.
Again it's May the 5th and things have been much better than expected. And so you know 80% let's say so far I think of companies that have reported have done better than expected. And that's very good. So earnings are holding up. So there's not a huge concern in the market that earnings are not holding up. And you're seeing the market rally pretty strongly.
So when you see that. Excuse me. You know lots of people you know had their concerns and they're like well you know maybe the market's just a little too optimistic. Maybe the valuation is a little too optimistic. But okay, well let's look at the earnings. But the earnings have been holding up. So now let's look at another index that's widely followed the Nasdaq, the tech heavy Nasdaq.
Well it's up even a little bit better. Almost 9% year to date 8.9% so far. And again you've had a down and a big recovery now in that number. And so the market is good. Now a lot of that has to do with the AI trade. Now the AI trade continues to do well. And so when you think about what these companies are doing and we talk a lot about the mag 7 plus, you can add the semiconductors in there that they're not included in the Mag seven.
And lots of these companies are positioning themselves to be leaders if they're not leaders already. So think about, for example, Amazon, which we've talked about, they're saying they're going to spend $200 billion just this year on CapEx. And a lot of that or the vast majority of that is going to go into making sure that they're number one in AI.
Now, Amazon is doing lots of things. They also open up their logistics. Logistics, excuse me platform to other people compete directly with UPS and Fedex. They have the MGM business. So they have a wide variety of things. But what's driving the growth? AWS obviously the retail platform, these are enormous things where they can also deploy AI, obviously with the bedrock is a big deal for AWS and their clients.
They are undisputed right now. You know, one of the key pillars in this business. Now, whether that stays that way or not, we'll have to see. And they've recovered nicely so far as well. And they have certainly bounced back if you think about okay well what is Amazon done year to date. Well there's been a big concern. You're up.
It's been down and up. But year to date it's up almost 20% 19.17% as of I'm looking at the data now Andy Jassy has been talking about the developments that they have, the push obviously in the AI world, opening up their platform, the Tranium of chips, which has been a fantastic, the graviton chips that they deal with, they did with Facebook.
So Amazon is really at the center of this game and they are playing to win. We mentioned this in some other episodes that the companies that at least take for me that are playing to win are going to be the ones winning. And that means the companies that are deploying CapEx and really trying to figure out how to do this, how to win this game.
Now, one of those companies that's in that mix that is doing well, getting a new CEO is Apple. Apple is one of our largest holdings. Amazon is too again, not investment advice, but we own these companies. And these companies have been in the portfolio for quite a long time now. Apple has not been playing to win as far as the CapEx budget goes.
Now they have the installed base. IPhone 17 has done fairly well, better than expected. The service business continues to grow. They're going to have a you know you know, transition and the CEO slot. We'll have to see how this all turns out. Now it's not a no brainer that that's all going to work out. But Apple has the strong brand.
The services revenue continues to dominate and the installed base continues to be a big moat for their business. If you talk about, you know, the Buffett moat around the business, Apple's installed base over a billion and counting and very stable. So the brand loyalty very high at Apple. And so if you look at the numbers, let's just take a quick peek at Apple's year to date numbers.
I would say they're good not great. Some up and down as well. But plus 3%. But they're not spending all this money. So one of the things that some analysts say is that, well, that's can be a very good thing. Right? There's two sides of the coin there. That number one, maybe they're not lots of concern. They're not deploying enough capital into play to win strategy to win in AI.
You could also say they're going to let other people spend this money and they're going to come in behind. And Apple does not necessarily first but does it best. And they're going to figure out their partnering with Google and Gemini. And they're going to figure out how to deploy that against their devices and on their platform. And they're going to figure out ways to win.
Time will tell. We'll have to see. So speaking of Google, let's look at the year to date number there. Some up and down also in the year but up significantly year to date 24% for Google. They're dominating also a current holding for the investment institute. Great job obviously by our students here. And if you think about okay well who's one of the vertically integrated players here in the AI who has a frontier model, who has their own cloud business, who has their own dedicated chips, TPUs.
That's Google, right? And they obviously own search right now as well. And so if you think about, you know, at the enterprise level, people that are going to partner with a company like Google can be very large companies where you have the suite of products, where you have the office products, where you have Gemini built in, where you have email built in.
That's obviously going to be a big shining star for Google and a place for them to plant the flag and say, look, we have this vertical integration we can deliver across all these. We have our own frontier model with Gemini. We have our own cloud business. And by the way, we have our own dedicated TPUs, you know, our chips that we can run our models on.
So, you know, when you talk about vertical integration, I would say that they have to be the only real player, right. The the other category we mentioned here, Amazon or the company, rather than that we mentioned is not in that same category. They don't have their own frontier model now. They have investments, but so does Amazon. So does Alphabet and Amazon and some of these frontier models like anthropic for example.
But a major distinction between where alphabet is or Google right now and Amazon is that they alphabet has Gemini and Amazon does not. Now maybe that ends up being a good thing. Maybe that ends up being doesn't matter moot. We'll have to see how that plays out. But there are major distinctions in what they're doing. And obviously there are major distinctions in the types of businesses already between Alphabet and Amazon.
Now, another company which we have a small holding in but has done really well, and I think I think it's worth mentioning on the chip side is Intel. So Intel is not a large holding. And it was a big concern and it was mostly down for the year. But it is up currently 195% year to date. So these are amazing numbers obviously that a change in the CEOs and investment from the US government.
And they've really turned the corner. And one of the things that has mattered there that I think a lot of people, including me, didn't anticipate. And, you know, I wasn't following it closely enough, but maybe some of you were, which is the number of CPUs that you need with GPUs. And so when this push became so intense for the GPUs to run these models, for the large language models and everything AI, well, the CPUs, at least initially, everybody thought, well, they're going to be left behind.
You're going to have, you know, these Tranium chips. You're going to have these, you know, specialized ASIC chips that are going to be very specific to what's happening in the AI world. And by the way, the CPUs. And that's mostly going to be GPUs and specialized ASIC chips. And the CPUs are going to be left behind. Now the word is here.
Obviously you're going to need more CPUs combined with these GPUs when you start talking about agentic AI. And so sometimes it's 1 to 1 or even more. And so you can you've seen the demand really rise for the CPUs. High bandwidth memory is another big thing. And I think we're going to do some more work on doing that.
Maybe preview and episode will at least talk about that a little bit more. But obviously in the share price, you can see the demand here has been very different profile versus the last couple of years for Intel. And Intel is up almost 200% year to date through May 5th, 2026. So that's telling a very different story. But the semiconductors have been on fire.
And if you look at not every single one of them would probably almost any of them. They're telling the story that things are very good right now. And the, you know, the market is expecting them for them to continue to grow. Now let's let's go back a little bit here to talk about what's happening in the overall market.
One of the things that I just want to back up one second to talk about what's happening in the business, we already mentioned it, but just to cut back on that for one moment, oil over $100 a barrel right now WTI 101, Brent 106 or 110 rather so. And it's been fluctuating all over the place. Now I think you have to keep a close eye on what's happening in this market because, you know, it's it's really important obviously for flow through for energy prices and how people are, you know, with the sentiment.
But really on spending now, overall spending from the consumer has been really good. And people, despite all of what can seem to be headwinds, the war in Iran, the concern about inflation, that hasn't mattered. The consumer has continued to power through now. Well mentioned here that Chairman Powell, we'll be stepping down. But he's going to be staying on.
He's be stepping down as chair will be staying on as a governor. Warsh is, you know, Kevin Warsh is being going through the nomination process now, he just got out of committee. So we'll see how that that all plays out. But the expectation was that once Warsh is in the seat as chair, that he's going to be lowering rates.
Not so obvious now in the market seems to be pricing some of that, but well, it's not going to be a given. It's not a layup that interest rates are going to get lowered as soon as he hits the seat. And you might have a divided, some divided votes there. People are concerned about inflation sticking around. The job market looks strong and I think the data is pointing that way.
And most people would interpret that the job markets and obviously you can pick out points here or there that the job markets are relatively good. You know, the broader economy for Q1 2026 grew annualized at 2%. So solid rebound from 0.5% in the first quarter here of 2025. So consumer spending, as I mentioned, remains remarkably strong. And people, you know, with personal incomes rising as well.
So the labor market holding steady here doing, I think, at least as well as people expect the economic data is solid. Now does that mean that it's all up from here? We don't necessarily know. Predicting the stock market can be hazardous. So be careful. We don't try to do that. We're certainly try to understand what companies are doing what are the fundamental.
Those are companies are and what quantitative models that we could build. You know depending on what it is for our classes. Now, something to mention about our classes. We just wrapped up the spring 2026 semester. We had stock pitches and our finance 4101 class. Great job from Professor Song, our VC class. We had the pitches for the end of the semester two great job Professor Collier and for the class that I ran a great job by all of our students in all three of our classes that we ran this semester in the portfolio group.
We're super excited, obviously, to hear the ideas from our students now we'll share more of that maybe throughout the summer as we put those things into work here. We're at the point in the semester what we call grades and trades, and so that's got to get done and get those out there. But it's always exciting to hear what ideas students are focused on, what new ideas come out of, some of the models, maybe some of the older models, plus what new models are being built and what sentiment that students have about different industries, different ideas on what type of models to build or what fundamentals to, you know, to focus on.
So it's always exciting to hear what they're up to. And again, we'll share more of that as the summer unfolds here. But great job again by all of our students. Thanks to Professor Song and to Professor Collier as well. Now back to the economy for one second here. Earnings. I had mentioned how earnings are doing better than I think people had expected and holding up really well.
So when you have the concerns where you say, well, inflation may be a problem. Yes, that is a concern. And, you know, interest rates are going to remain high. Well, we'll have to see how that plays out even if interest rates remain here, earnings continue to come through now will that continue. Well we're we're getting through earnings right now.
And you're going to hear more and more about that from companies. And but right now the outlook is positive. And the data that's already been in is very positive. And so earnings are holding up. So people have concerns about well the valuation is also quite high right now. Now there's a couple of ways to be looking at that.
On the valuation side. Historically the numbers are let's say higher elevated or fair value. Now one of the challenges when you look at this, at least in my mind opinion here, not investment advice as mentioned, is that the quality of companies today does not match the quality of companies. Five years ago, ten years ago, certainly not 20, 30, 50 years ago.
So when you look at some of these historical numbers and you use PE and say, well, look, historically this is a high number, right? Well, that can be interesting. That can be instructive or illustrative. It may not be instructive, rather, because maybe the market is different, maybe the quality of the earnings for these companies is higher because profit margins are higher.
The quality of those earnings are higher. The quality of those businesses are overall higher. They have more pricing power. They have higher, you know, gross margins, they have higher net margins. And they are going to continue to get higher quality with respect to those categories, because you're going to have more AI doing more things, and that's going to increase the gross margins and then net margins for the companies that are able to deploy those things and those companies.
And if you're using a cap weighted index like the S&P 500, which is kind of a momentum play in the sense those numbers are going to continue to drift higher on average. Now, that may not be the case, but at least I think it's worth thinking about when you're thinking about trying to understand and do it. Apples to apples comparison to companies now from companies from 10, 20 years ago.
The multiples likely should be higher if these companies are more efficient than the companies 20 years ago. So the net net is how do we adjust for that? I think that's hard to do right now. I haven't come up with a standardized method. If I do, we can share some of that. But I do think it's interesting and at least a good idea to think about, well, how do we adjust for that?
The quality of these businesses should be higher if they're deploying different types of even just automation, if they're more efficient, if they're able to deploy resources, more efficient. Now you get into AI and robotics, it should be even more efficient. Now, one of the things that I do want to mention, fantastic. And a shout out to Steve Ross for sharing his notes.
Thank you, Mr. Ross, advisory board member for the GW Investment Institute, one of the original ones and former trustee of the the entire university at GW. So thanks for sharing the notes, Mr. Ross. It was the first annual meeting where Warren Buffett was not the CEO and taking questions up on stage. So that was obviously very interesting. Greg Abel up there, Ajit, Jane up there, Greg Abel, the CEO of Berkshire, one of the holdings for the Investment Institute, to be clear, not investment advice.
The company obviously will change here and has already started. Buffett asked the first question, which I thought was interesting. So he's in the audience, he's on the board. And he asked the first question from station one. And again, thank you for sharing the notes. Mr. Ross looked like an interesting trip. Sounded like an interesting trip. I think we all have to start to understand what's that Berkshire look like from here.
Obviously, one of the things that we built the Investment Institute on was the teachings of Mr. Buffett, especially when you talk about the Essays of Warren Buffett. Shout out to Lawrence Cunningham, who put that together, collection of his annual letters to shareholders of Berkshire Hathaway and Ben Graham, his teacher at Columbia, The Intelligent Investor, both fantastic books, both that we use for class.
Now, where do we go from here for Berkshire? I think the leadership is going to be very different, or the expression of their leadership is going to be very different than Buffett. It might be similar, but I think it's going to be difficult to replicate that 60 year track record that Buffett had. There's a much more greater emphasis on the operating parts of the company already.
Greg Abell and Operator, that could be the best thing to do, by the way. Time will tell. We'll have to see. We'll be following that company closely. But thanks again for Mr. Steve Ross for sharing those notes with us. And we look forward to obviously continuing to follow Berkshire. Again, a holding for the Investment Institute and we'll see how it goes.
Well, we've covered a lot of territory. Thanks for paying attention. Thanks for watching the show. We really appreciate it. We'll share more about what came out of this semester. Again, we're in the grades and trades category right now for the end of the semester. Congratulations again to all the hard work for our students. Thank you very much. And thank you, Professor Song, Professor Collier, and certainly thanks to all the students across all of our classes, including quant class too.
We'll share more. As time continues, we'll look forward to seeing you back on the next episode of Market News, Rodney Lake. Thank you.