Episode 99 | Mid-Year Market Update: AI, Big Tech, and Space

In Episode 99 of “Market News with Rodney Lake,” Professor Lake provides a comprehensive mid-year market update, highlighting the strong performance of the S&P 500 and Nasdaq, large tech holdings, and intensifying competition in the AI and space industries. He examines several of the GW Investment Institute's largest portfolio holdings including Apple, Amazon, Berkshire Hathaway, Alphabet, Microsoft, and Nvidia. Lake also discusses the evolving AI race, the competitive landscape among frontier AI models, and the growing importance of AI infrastructure, data centers, and cloud computing. Professor Lake emphasizes the importance of maintaining a disciplined, long-term investment approach while evaluating companies and the overall market.

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.
This is the GW Investment Institute podcast for students. That's what we're here for for the Investment Institute. This podcast is for the broad listener group and the people that watch us on the YouTube channel. Thank you so much. Continue to send us good vibes. Subscribe. Send comments. We love all that. Remember entertainment and you know educational purposes only, not investment advice.
Disclaimer up front and at the tail end here, we're coming to you from the George Washington University School of Business, Duquès Hall, Duquès family studio. Shout out to the Duquès family. As always, thanks very much. Great studio that we have here. We really appreciate everything. All right. Right here from the heart of Foggy Bottom. This episode is going to be a general market news, which is what we do at the beginning of our classes, which is, hey, we're going to do a general overview on what's happening in the market.
Students bring in things. We had a great wrap to the spring semester. So thanks again to all of our students and faculty staff, the team members, our advisory board members, alumni, everybody that made all the things happen. We had a great semester. Obviously. Maybe it's not obvious, but for those who don't know, we generally don't run programing in the summer or classes in the summer.
And so that time will be off and we'll be back to work in the fall semester. We'll obviously continue to monitor the portfolios of the Investment Institute with our great team. And so we really are looking forward to welcoming students back after the summer break. And they're doing internships or all the great work that they might be doing will welcome them back in August.
All right. So to get to work here, we're going to cover again some general news and what's happening overall in the market. So one of the things that you heard on the on the KHER report is the Strait of Hormuz opening that's happening, you know, and it looks like that that's going to have a very sizable impact on the opening of the Straits of Hormuz and rather the oil market.
So that's going to be a big bonus. And that's having an immediate price action with prices going down into the 70s from over 100. So you're absolutely seeing some really positive things happening there on the economic front. All right. But let's let's talk and focus most of this on the equity markets. The KHER report covered a broad scope of things from the economic viewpoint.
Our chief economist Kathleen Hinman, thank you to Kathleen for that episode as well. We look to the next installment of the KHER report. So let's check in on the equity markets though. So when we talk about what's happening in the overall market, there's quite a few things we'll mention a couple of things that that are happening at some individual company level.
But let's first start with with what's happening at the index levels. And so when you talk about the overall market, lots of people, including us, use the S&P 500 as the index to say, okay, this is the 500 largest companies. It's fairly representative of what's happening in the overall market. Well, there's been some ups and downs, as you know, for the year to date number.
But the year to date number and this is through mid June here we're talking 10%. So that is a fantastic mid-year return. If you're following along and paying attention at home and keeping score you know 10% could be let's say your long term average return, maybe even a little bit lower than that. And if you use the rule of 72, and if you're not familiar with that, if you take the return and you say 72 divided by the return, it will take that many years to double.
And so that will be 7.2 years. And if you did the reverse and you said I'm compounding at 7.2%, it would take you then ten years to double. And so that that's the rule of 72. And it's a helpful way to understand okay well how you double. And so if you're if you're at 10% right now for the half year now, you could stay flat, give some back and end up at the ten the long term average around ten for the S&P 500.
So you're doubling again every 7.2 years using the rule of 72 for that. But it's important. These are this is an excellent year to date return. But you've had up and down in the market obviously. And also the news that things are settling down. And everybody's optimistic that this deal will hold in the Middle East with the U.S. and Iran, that prices are down.
Stock market generally has been up and the stock market has been kind of pricing this this news in a little bit already, but it remains positive news overall. And so some of the things to think about, you know, obviously from the from the equity side is, you know, people consider valuations could be a little bit high here. And there's lots of attention on some of the names specific names which which we can talk about.
But let's move over to the Nasdaq to check that we, we hold a lot of tech companies and remember not investment advice in the portfolios across the GW Investment Institute. And so I think it's worth checking in on what's happening with the largest 100 tech companies. So the Nasdaq Composite here the year to date even better. So you're at 14%.
So fantastic year to date returns so far again through mid-June here. So but it is important to think about you know there is up and down here and the AI race is on. And we keep talking about that. Some of the companies that we consistently talk about in Nvidia is in there, Apple is in there. And interesting Apple, which we'll call it here in a second because that's one of our largest holdings, is not doing well in the AI game.
And I would have to say there's a transition, which we talked about happening at the CEO level, that they're still remained behind. They had their developer conference and they announced that series going to get upgraded. Not sure when. Still waiting. Thank you Apple. Let's hope that they can make that happen faster. Siri remains not great. No offense theory certainly versus some of the other models.
I think it lags behind. And now they're going to be using Gemini for that. So when you pay special close attention to Apple, obviously the ecosystem that they have built, you know, is very sticky when we talk about them having pricing power. But on the AI front I think that's challenging.
All right. Back to the major index first.
And we're going to go into a couple of companies to talk about individually here. Not a full deep dive on any of these companies as we do on some of the episodes. But just to check in and some of these are our larger holdings for the Investment Institute that students have either put in the portfolio or remain in the portfolio.
So again, great job to all of them. The year to date number, as I mentioned, 14%. And okay, what's the year over year number. Even better to 34%. Again, there's been ups and downs here, but the market continues to charge ahead on the Nasdaq and again led by the tech sector led by AI here. Really you know, for the last few years you know that that has been the case.
Obviously you can pick moments where they've lagged behind or the AI trade hasn't worked or the Mag seven hasn't worked more recently. But if you look over the past, let's say, 3 to 5 years, you've really had strong performance from a lot of these companies. And so and the AI trend continues here. And if you look the year over year number back to the S&P 500 just to give the comp there, you're talking 25%.
And so again 25% for the year over year and 34% for the Nasdaq respectively. There again 25 for the S&P 500, and 34 for the Nasdaq. All right. So let's let's jump into a few specific companies I mentioned Apple here. Again they say they're going to upgrade Siri. We're all again waiting very impatiently at this point. The year to date number is you know not bad kind of market perform here 9.78% through mid June here.
So kind of right on top of the S&P 500. And as I mentioned everybody wants Apple to perform well. Not everybody. Many people, we're Apple shareholders shouldn't say everybody. Apple shareholders and people who are consumers of Apple want Apple to perform better with respect to AI and what's happening there. And we're all waiting right impatiently at this point with what's going to happen with the upgrades, and how is this going to drive growth through the company.
And, you know, share buybacks have been super positive. But what we really want from Apple is growth. And so that's something that I think we really need to pay attention to. All right. Moving on here. We're going to check in on a bunch of different companies that are larger holdings for the Investment Institute that our students have put in the portfolio, again, not investment advice for for any of these companies individually or in the aggregate educational entertainment purposes only.
So let's check in on Amazon. So Amazon obviously has been a big part of the AI trade here. And that is, you know, AWS Amazon Web Services and their Tranium chips that they have put in place that people are using like anthropic to build and run or to run their models rather for, for Claude. And so what's the year to date number actually a kind of a market underperform here.
So if you're looking at the overall market we're close to where around ten and and we're at seven just over 7%, seven and a quarter here for Amazon over the same time period. So not fantastic. But there was some dips in a pull up here. But if you look at the year over year number a little bit better closer to market, they're 15% but still trailing the overall.
You know the market for for the S&P. So kind of an underperform. It was 25 as we mentioned for the year over year. But I do think it's important. And it's been performing a little bit better more recently. So if you look at the six months they're a little bit better 11%. And as a reminder, we're not short term investors.
We've held Apple from the Investment Institute as one of our original trades all the way back in 2005. And so we're certainly not short term. And, you know, it's not something that we talk about and really teach to trade. There are people that are good at that. But what we really teach is how to be long term investors and people that we want our students to focus on.
How do you think about a company in the long term? Now, the long term, it's really hard to think out ten years and you can be a holder for ten years. But as an analyst, investor, business person, what we're trying to train for is how do we use our framework, business management, price valuation and balance sheet to think about what's the next one, three and five years?
And so in the business model, how can they be effective. The team that's managing it, you know, what are the price that we're paying or where we're holding this. Or maybe we need to trim it. And certainly what's the risk in the balance sheet in the capital structure. And so we're focused on that. So I'm giving you some of the stats here but just informational purposes only just to keep track.
But we own these companies and we try to own them for the long term. All right. Another company that I think that is worth watching is Berkshire Hathaway. That's another holding. It's been a long term holding for the Investment Institute. You know very famous Warren Buffett has stepped down as CEO. Greg Abell is at the helm. And they had the first annual meeting without Buffett being the CEO.
He asked the first question. This was in May. And so I think it's important for us to keep track of this. As I mentioned on some other episodes, if you're following along here, Berkshire is sort of the contra AI trade. And so if you're a little bit worried about what's happening with the AI trade, well, Berkshire is piling up cash beyond 300 billion and really is not super exposed to the AI world.
One of its largest holding is Apple. So you would say, okay, well even with Apple, they're not super exposed to the AI trade because, you know, you could make the argument that Apple is kind of the large tech contra AI trade right now that they haven't overspent on that. And Berkshire owns a big chunk of Apple and the rest of their portfolio railroads, insurance, you know, exposed on the insurance side I think quite by a lot, which we've talked about.
But I would say the contra AI trade and if you had to sell off, you know, they could be in a position to deploy capital. And Greg Abel has already done a purchase here of HomeBuilder. And so, you know, not a huge number, but I think it is important to watch what Berkshire is doing. And if you look at the year to date number market underperform on that.
And so -1% through mid year here. And the one year year over year here for June is is 1.5%. So not doing fabulous. But if you're worried and you want to put a hedge in the portfolio not investment advice. But I do think it's the contra AI trade and something that is an analyst business person investor that you should be considering thinking about keeping track of.
And I think that's super important. All right. Going to touch on a couple other companies. And we've talked about all these companies generally speaking before in some way, form or fashion, whether it's individual episode or covering them. But again, kind of a market check. But we're checking on some individual companies.
All right Google, we also own shares here. Alphabet is the parent company along you know in the Mag seven here. And so if you look at the year to date actually they've been doing quite well up 18% closing in on 19. And if you look at the year over year here you're talking up 110%. So they have actually performed very well over this period. A lot of people consider them the most integrated AI play out there, which I do think it's important to watch them now on hot take on frontier models.
Where do I think the frontier models are right now? And this is highly biased. It's not based on all these benchmarks that people use. It's based on my benchmark of the things that I use and how how I use them, which is mostly around producing things that are investment analysis. Now, occasionally I do use Gemini for art, especially when I'm doing DJ Lake Superior gigs.
That's my DJ handle there. And so we'll be doing one in New York for alumni serving the city August 4th. Make sure you're there if you're an alumni in the New York City area.
All right. But for investment analysis, the two models that I think have performed the best, and I would say one still wins out, I think, at least for me, is Claude and then ChatGPT with OpenAI.
So Claude with anthropic and then ChatGPT. And so I think Gemini and Grok are in a step down at this point. And I do think that they're good models. I think that there can be very useful. And I think in use cases, I think they're very good, particularly on some of the things for Grok, if you're trying to get if you think that there's data in X platform that is quite timely, that you want access to trying to run some type of analysis, then maybe that's important.
And then with Alphabet, if you have a Google Workspace and the, you know, a suite of products from from alphabet, I think that that's quite useful. So I think there are different use cases. And if you think about what's happening here with respect to how you use these models, how you interact with them, it may not be a winner take all market.
It may be there's some specialization that's going to continue to happen, and that people are going to use different models for different things, and that's just going to how the market will evolve. And obviously you're going to work to integrate things as you go. But it seems to be who's on the frontier. For me, I would put anthropic at number one and you see the government shutdown mythos.
And so I think that, you know, I think that's interesting to be noting that the government has has stepped in. And I do think that Claude is out. And number one, some anecdotal information. You know, when we're building our models for our quantum class, I think most people converged on using Claude to build their models. And so I do think for me personally and for the things that we did for the Investment Institute this past semester, I think Claude really is the number one.
So that's the hot take for the frontier models for investment analysis, the way that we're doing it at the GW Investment Institute, I think Claude is up front, and I would put Codex behind that. Some people would switch those to the OpenAI’s Codex versus Claude Code. Now some things to note. The markets moving pretty quickly spaceX, which I'll mention just had a deal, an option to buy Cursor.
And you know, the the second day public, the third day public rather they they the deal has been announced that they're acquiring it 60 billion. So I do think that that's interesting to watch. And so cursor has been a really fast growing software company to help with the coding. And so integrating that into Grok build now will be interesting to watch.
And so all right back to to alphabet again vertically integrated I think it's interesting market cap. They're $4.5 trillion. So massive company has done super well one of our holdings and has been for a while. And so obviously we'll continue to to watch what is happening there.
All right. So a couple other names that I want to check in very quickly. Just want to check in on Microsoft here. Don't want to spend a ton of time. But certainly one of the massive companies, the Azure platform for cloud services, $2.9 trillion market cap the year to date number here. This is a massive underperform. Why I want to mention it. It's down almost 19% on the year to date number. People are concerned that it's falling behind in 18% on the year over year worth watching.
We haven't done anything with dramatically with this, but I do think it's worth watching and seeing what's happening. There certainly has a different outlook, at least at the moment, for where it was versus, let's say, a couple of years ago, when a lot of people or maybe two and a half years ago when a lot of people thought it was in the driver's seat with its stake in OpenAI in the early link up, and now it seems like that's possibly a disadvantage for them, and that has set them back, possibly from building their own types of models.
So I think important to watch and something that, you know, we'll have to pay attention to. And I think investor, business person, analysts, you'll need to pay attention to that.
Now, it wouldn't be an episode without talking about Nvidia, especially talking about tech companies. Large holding for the Investment institute remains the largest holding across our funds here, and so important. And our students have affirmed that this past semester. So again, not investment advice, but I think Nvidia remains a cornerstone in the AI world, and they continue to be in high demand.
A couple of things that I'll mention about them after I give some data here. So the year to date here, 12%. So, you know, modest let's say outperform from the market. And again, not super focused on the short term. But just to check in on the performance. But the year over year is still very healthy 44% you know outperforming S&P. Check in on the data here. Market cap 5 trillion. So massive company. The forward PE is still relatively I think okay you're less than 30 depending on what you're using for earnings expectations here.
But certainly not I think for the type of growth that you're getting expensive on, on this company. And you know, some people are arguing out there analysts that, okay, this is actually undervalued at the moment. One of the things that I think is important to note. So as an analyst, business person, investor, how can we try to understand what's happening with respect to the competition for this?
Obviously, Cuda is a very sticky platform and has been and I think it's important to watch some other things that are I think interesting is that you had actually spaceX, we got the S-1 filing have deals with both anthropic over $1 billion per month to use Colossus, which is principally Nvidia GPUs. And then they had another deal with Google, who has TPUs of their own.
And a lot of people talked about as competition over 900 million a month for renting of AI data centers from space. And so I think it's kind of interesting to make to pay attention to this. And they're using Nvidia GPUs so that they felt compelled to spend a nearly $1 billion a month in the case of alphabet and over $1 billion a month for anthropic, for access to this, for training their models.
And so while some people say, okay, this competition for the TPUs and the Tranium chips is, you know, eating away at the pie for Nvidia, which again, I think you have to take that seriously and do the work. But in my humble view, and again, not investment advice is the pie is growing and it's growing substantially. And now how this all ends up in ROI.
I think we all have to pay close attention to what is happening there. But I think it's important to pay pay attention to what's happening. With respect to how Nvidia remains, I think at the center of this ecosystem, obviously, it's been buying companies and making investments in AI companies, and it remains to me at the center of this ecosystem and something that we have to continue to pay attention to.
I think there's a lot more analysis that needs to be done here, but it looks like some anecdotal evidence here. The position remains strong. Jensen Wong, huge fan of won't hide that bias. According to direct reports doing a great job. You know co-founder of the company. You know lots of great things to say about his capital allocation skill and his willingness to work super hard to make things happen and push things forward.
So all good for Nvidia. Their last thing I'll just mention, and this is obviously worth something on its own. But to close out here, talk about SpaceX and SpaceX went public on Friday. Market cap is now 2.7 trillion. They just acquired cursor as I mentioned to go with AI. And so SpaceX obviously a storied company already you know 20 plus years in the making as a private company now gone public.
So Elon Musk and company continue to fire on all cylinders here. So we'll see what happens there but worth paying attention to I think moving forward. And we've talked about data centers in space. And so being being you know, an analyst with respect to space I think is going to be important for all of us in business because I do think, again, humble view, not investment advice, that the space industry will be consequential, important as business people, investor and analysts moving forward.
So getting up to speed now, I think is a great service for yourself to make sure that you're understanding what's happening with respect to the overall market.
All right. That is it for this episode. Thanks for being here. Thanks for watching on YouTube and listening on app or Spotify. If you have comments, we'd love to hear them. Please subscribe and stay tuned for the next episode.
Thank you very much. That's it for this episode of Market News with Rodney Lake.