Episode 40 | Magnificent 7 in Focus: Navigating Volatility with a Long-Term Lens

In Episode 40 of “Market News with Rodney Lake,” Rodney provides a timely and insightful overview of market activity amid ongoing volatility, focusing on the Magnificent 7—Amazon, Nvidia, Meta, Microsoft, Apple, Alphabet, and Tesla. He discusses each company’s recent performance, business fundamentals, management quality, and valuation outlook, with special attention to the impact of newly announced tariffs and broader macroeconomic pressures. Emphasizing a long-term investment perspective aligned with the GW Investment Institute’s endowment strategy, Rodney highlights Amazon and Nvidia as currently the most attractive opportunities while noting increased caution around Apple due to supply chain uncertainties. The episode delivers a high-level, substantive breakdown for investors seeking clarity in a turbulent 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. Today's episode, we're coming to you from the GW School of Business, George Washington University School of Business, Duquès Hall, right here in the heart of Foggy Bottom.

Thanks for everybody who's coming back to the podcast and to the YouTube channel. We really appreciate that. And we certainly appreciate all the support that you've given us, so far. Very much appreciated. We're getting more likes everywhere. So, you know, please subscribe if you can. All right, today's episode we're going to have a Mag 7 overview.

Now today I'm going to date this because the markets are moving so much. And so this will be maybe ancient history by the time it comes out. Today is April 8th. And the markets are all over the place. And so the tariffs, people expected them. They were announced. The specifics were not given until the day of, and then the markets went haywire.

And so but the markets are bouncing back pretty dramatically today. So when you talk about what's happening in the world today. First we'll just cover the market. Then we're going to get into the Mag 7. This episode is more of the market news sense that we do in one of our classes at the GW Investment Institute.

So a little bit of an overview and some of the things that are happening in the market. But we are going to go like we talk about specific companies over the Mag 7. That is the Magnificent 7, Magnificent 7. If you haven't heard of that, that is Amazon Nvidia, Microsoft, Apple, Alphabet, Tesla. Those are the companies that we're going to be talking about today.

And Meta excuse me to round out the Mag 7. So why are people so focused on the Mag seven? Well, because, you know, they have the been the biggest drivers for performance attribution for the S&P 500. People talk about the Mag 7, and the other 493 companies that are in the S&P 500. But they have been hard hit during this tariff episode, and certainly, the year to date numbers are not good.

And we're going to go over each one of those, in that order that I mentioned. And so, but what's happening on the markets today? You know, you've had the market's up and down a lot, down mostly over the last few days here since the tariffs were announced. But you're up today on the S&P 500 right now.

Over 3% closing in on four. The same for the Nasdaq. And the same in the Dow just over three. And again, this could be ancient history by the time this comes out. But just to give a sense that the markets are moving around a lot, and we're going to talk about these companies not just for the next day.

And certainly, at the Investment Institute, we don't think in terms of we're going to invest for a day or two days or five days or a week or ten days, or even a year. We're trying to think we're investing for years. One of our advantages is that our students’ client is the university. These are endowment funds that our students manage at the GW Investment Institute.

So we have a long term time horizon. We have to plan for our payout. It's about 4.5% the same as many other university endowment payouts. As an example. And it's the same, as the rest of the university's endowment payout as well. Or it works in parallel, to those funds, too. And so that's something that we plan for, that we, we try not to get too cute with with on the cash part.

And so we, we make sure that, when it's time to do those things, we do it in and supports the programs. But for the other part of the portfolio, what we're trying to be is, you know, for us, not time to market. So we're trying to be as fully invested as possible, over a long period of time.

We're not trying to guess when it's time to go into the market and out of the market. So we try not to get, you know, overly precise using one of Charlie Munger's words, you know, you don't want to beat, you want to be generally right versus specifically wrong. So we're trying to say, how do we get exposure to the best companies over a long period of time?

These Mag 7 are fantastic companies, and we're going to jump into those. So let's start off and we're not going to, we'll talk about elements of the GW Investment Institute framework for each one of these. But we're not going to do a deep dive like we do, when we're just doing that, you know, one episode on one company.

So we're going to cover some territory and we might skip over some of the, the components for some of the companies or very or cruise pass it, very quickly. So let's first talk about Amazon. And so and I would probably put this at the top of the list. The things have sold off as the most attractive, you know, company in the Mag 7 right now.

And I'll give you some sense of why that is. And so if you're looking at, okay, the business of Amazon, we all know what the business is. On the retail side, click, you know, things get shipped to your house. Everybody uses Amazon. See all the boxes out in front of people's houses. Or if you live in a building down, in the lobby where you pick up those packages, people are ordering everything on Amazon.

People have Prime. This works a little bit like the Costco model where you have this membership. People are reluctant to get out of that. You get these other benefits to be part of that. And they have continued to grow the Amazon Prime membership over time. And it's pretty sticky. You know, people tend to stay in now, the margins on that business are not as good as the Amazon Web Services, which has been a huge home run, has been a huge growth engine now for Amazon AWS.

And so one of the things you should be focused on is AWS in the cloud. They also have their own competing chips, for example on GPUs. Now they're not going to be the same as Nvidia's, but they're designing their own GPUs, for people to use for large language models and other functions. I would say pay attention to that part of Amazon's business, AWS,

Obviously, people are paying attention to, but I do think the design of their own chips is going to is important and will become more important. And when people can buy that, it's at a far cheaper setup now, maybe the functionality is not as strong as the tier one chips at the time. Blackwell, for example, for Nvidia. But to do some of the different large language models, I think that they're going to be very competitive.

Certainly at a price point where it makes sense for people to say, well, maybe I'm doing some workloads with Nvidia and I'm going to have some workloads, running on Amazon's GPU chips. And they don't they don't fabricate those. They make them or design them. And then Taiwan Semiconductor fabricates those chips. So as a carve out for Amazon, pay a special attention to that.

Now if you look at, you know things have pulled back. And so now Amazon's trading forward at 25 times almost 26 times it's up you know 4% today. $182 again to date this on April 8th 2025. But on the valuation side, you know, it's I think, you know, an interesting time to be paying attention.

You know, I skipped over management, but Andy Jassy, who built up AWS, is running it now. Looks like Bezos is a little bit, back more involved. You know, like the management, like the whole set up. Valuation, certainly not expensive historically, for Amazon. And it has sold off pretty dramatically. The year to date number down almost 17%.

And so but bouncing back here. But I think fantastic company. They're going to have problems with the tariffs for sure. If they flew through as is all their products on the retail side are going to be more expensive. They could make up for that on the cloud side. Again, pay attention, pay attention specifically to the GPUs and then clean balance sheet.

I don't think anything to worry about. They're not as much cash as some of the other companies, but certainly not something that we're really worried about. All right. To move on here. We're going to try to cover all of these companies. We're going to cover all these companies, going to try to do it quickly. Nvidia next one.

And this is in order of what I think the relative attractiveness is right now again, April 8th here. Nvidia has, you know, been the high flier. And the one year return, you know, is 20, almost 21%. But the year to date number is minus 21%. So it's had it's hit hard times. I think most people know, what Nvidia is right now.

So when we talk about the business, they're making the GPUs, they're at the top of the tech stack. When people need to access the cutting edge of technology for their large language models and AI agents, in anything that's related to what's happening in the world of AI starts with those Nvidia chips. Starts with Blackwell now, in the H1 100s.

You know, before that. And so the valuation has, you know, had crept up, but now, so on the business side again, huge moat around their business, you're still talking huge margins on the business, you know, 70%, growth and 50, you know, plus on the net. So fabulous business, high demand moat around the business, not a, you know, second place Amazon.

Again, I would pay attention to that, but not directly a competitor right now. And so but you know people saw DeepSeek, got worried, a little bit of a sell off, tariffs, big worry now. What's going to happen? We'll see. But it could be an interesting time to pick up shares. You're you're getting it at 23 times forward.

Certainly not a big PE for such a best in class company. When you talk about moving on to the management, Jensen Wong really sort of once in a generation, maybe manager for a company that's like this, doing a fantastic job, you know, has 30 direct reports or something like that, very flat organization. The way he runs it, very specific to him, very specific to his personality.

Founder lead still owns a big chunk of the business. Very optimistic about him and his management style. We already talked a little bit about the valuation. Again, 23 times. I wouldn't call that super expensive, certainly, below where it has been in the past and has sold off, you know, 20, year to date, 22%, up big on the day here.

7%, and then strong balance sheet net cash. Not not to worry about there. Moving on to Microsoft. You know, and you could probably put, you know, some of these companies I would kind of group this next to our next three, in a range here. And really, maybe we'll talk. Yeah, we'll talk about Meta first before Microsoft.

So Meta, you know, they make all their money from advertising. So that's the business, right? And so, you know, the platforms, it's Facebook, it's Instagram, it's WhatsApp. These are, the platforms, you know, that Meta now platforms controls, has the, the AI, the open source Llama. And I think that's very important. They probably don't get enough credit for their AI piece of the world.

So I would say pay attention to what they're doing there. But look, it's an advertising business. If there is a recession, they're going to get hit too. But, you know, they've had the year to date number minus, you know, almost 8% and not a huge return, the one year return, you know, plus 3%. So again, advertising business, dominant in this platform, you know, a lot of free cash flow from this business, trading at 20, and a half, let's say 21 times forward, you know.

So really established obviously business here, you know, well run you know, efficiency was one of the causes they made a couple of years ago. And they certainly have been doing that. So good business, high margin business. On the management side, obviously Zuckerberg here still running the company. Founder, founder led, doing an excellent job of making the company more efficient in the last couple of years.

On the valuation side, you know, 21 times forward, not expensive. Certainly then versus historically and then, you know, clean balance sheet also for Meta. Moving on to Microsoft. And again, I would I would group Meta, Microsoft, Apple and Alphabet sort of in the same category. And then we'll put Tesla, kind of the in that third bucket, of this group.

So you kind of in my view, you have Amazon, Nvidia in one bucket at the top of this Meta, Microsoft, Apple, and Alphabet in this next bucket. And then Tesla kind of by itself. And we'll talk about why, in this third bucket. And so but to talk about Microsoft, people know the Microsoft business. It's obviously the operating systems, the Office dominant in this categories.

People obviously are using Excel and Word and PowerPoint and all the products, using 365. You know, they're trying to get more people to use CoPilot. I think that's kind of mixed right now. Not sure how that's going in my own personal experience, I think it works okay. I don't think it works fabulously. But, you know, dominant and in the Office space, dominant, enterprise software and Microsoft Azure, equivalent to the AWS, has been sort of the next big player onto the scene and, you know, took up some ground from AWS.

And so certainly from the cloud point of view, and Nadella and that's we'll get into the management, did a fabulous job to reposition that business, to really take advantage of what's happening in the cloud. Big investment in OpenAI. You know, there's still some concern on transferring that from a not for profit to a fully for profit.

And how that's all going to turn out, you know, does Microsoft want to build their own, in-house, AI platforms? Well, we'll see how that all turns out. And then some other big parts of the business. You talk about LinkedIn, as an example, and the gaming piece. All super important, you know, the acquisition of Activision Blizzard.

And so again, solid business growing, doing, I think moving on to management, Nadella, doing a fantastic job of really repositioning them into that cloud business to complement everything else that they're doing. Really a big enterprise enterprise player. People trust the Microsoft brand. So really important, and again, give high marks to Nadella for repositioning, when he took over, for Microsoft and giving giving them that exposure and now leading, in parts of AI.

Then you talk about the valuation. Certainly not expensive here. But, you know, a little more expensive than some of the other ones, but probably a little bit more stable. You know, you're talking 28 times, 29 times forward here. It's rallied a little bit on the day. But the one year, is down 12% and the one year return is, year to date is down 12, and the one year is is minus almost, 12.5 a little bit more.

And so, you know, not great on the valuation compared to the others, but certainly relative to how expensive it's been in the past, not so expensive. And in the balance sheet, clean balance sheet. Not worried about, not worried about any of these by the way on the balance sheet. So really not a concern for the Mag 7 on balance sheet.

Some are stronger than others. But you know relative to the rest of the market, these are all fantastic companies with great balance sheets. And so now moving on to Apple. Now Apple this is one of their largest holdings in the investment. It's you know and by the way we own all these companies in some form some larger than others at the Investment Institute and across our portfolios.

Apple, one of our largest holdings, second largest holding actually behind Nvidia. Apple is you know, it's in the middle of this pack and it's in the middle of the middle pack because it is challenging to understand what is going to be the implication of the tariffs for Apple. If you're watching the news you're hearing Apple talk about, they're trying to move some of their production to India to try to offset some of the tariffs that are going into China.

Obviously, Foxconn, if you're following the production cycle for Amazon, is a big player, in mainland China for Apple. Now with those tariffs are going to make iPhones more expensive people. You know possibly, you know, stocking inventory, buying the things that they, might have thought that they would buy in August, buying those things. Now however, what's the how is this going to play out over time?

I think it's really challenging to tell on Apple. And so that's why I have it kind of in the middle of this middle pack here. Is that, you know, we're going to have to wait and see, and really pay attention. And certainly for our analyst at the Investment Institute, we're going to be telling them, you know, we got to dive into this, how, you know, what is the management team saying?

And so when you talk about the business of Apple, we already touched on that. It's the iPhone that starts with, you know, that that's what drives their whole ecosystem. And then obviously the services has grown. But the iPhone is is the bread and butter for Apple. And so when you talk about the refresh cycle, people coming up, with the iPhone 16 Pro as an example with the AI tools and those have been slowed, that's a little bit of a concern.

The tariffs obviously they’re taking the center stage right now, but the slower rollout of the AI tools also a concern. So not just the tariffs but how Apple has been operating with respect to AI. Now, you know, historically there never haven't always been number one rather to for example, even you know, the smartphone but then dominate.

So you know, maybe give them some space to figure out what their AI strategy is going to be. Now, again, front and center are the tariffs. We have to figure that out and what's going to happen. But again that's why I put them here still fabulous company. Still second largest holding at the Investment Institute. But our analysts need to really watch this one closely and try to figure out what we think is going to happen.

So fabulous business again phones, services, you know, ecosystem has been great. Fantastic brand. Management, Tim Cook has navigated you know storms before certainly have high you know, respect for his business acumen the way he has run the company, you know, since Steve Jobs passed away has really turned Apple into a dominant force, even more so than it was, and certainly a big cash producer.

So fabulous, you know, high marks, to Tim Cook, and certainly optimistic about the future, in the short and medium term with him running the company and his team. On the valuation side, not particularly expensive or cheap, you know, less expensive than it was, before, obviously, the sell off. 26 times in the next 12 months, the year to date.

Number two, talking about, you know, bigger selloff here. You know, people anticipating the hit, you know, almost 25% minus year to date even after they come back today about 3.8%. One year return, about 11% coming in on 12. So you know we'll see. Strong balance sheet again. Not worried about any of those. So again, that's why Apple is kind of in the middle of the middle.

Got to really figure out what's going to happen on these tariffs. Now moving on to Alphabet, Google. Alphabet's the parent company. We did a recent episode on Alphabet. You know the business. They still generate, you know, most of their money from search and advertising related to that, you know, YouTube, however, is a strong property within this.

And obviously our show is on YouTube as well, if you're watching it there. So look, they have a dominant property, in the media business, YouTube growing. Excellent. People are concerned and we have our concerns to our shareholders of Google here for, you know, people are switching from their traditional, to the AI platforms. And if you're, you know, not using theirs, which is Gemini, you know, that's going to obviously they're going to lose, you know, eyeballs are going to lose, demand on the search side because people are going to use ChatGPT or people are using grok.

Now, if people are using Gemini, obviously, they can build that in and people have to then figure out how to optimize for this. And so they'll have to work on that. I think that is a concern. The big acquisition, $32 billion Wiz to use AI as a platform. You heard us talking to Dan Ives. That sort of, derivative play is the cybersecurity.

And I think in this case, Google is going directly after that. How can they use that cybersecurity to to further deploy their AI tools? They're doing it against Gmail. They're doing it against their office suite of products. Google Docs, Google Sheets as examples. And so they still have a big platform that they can deploy that on.

And Gemini definitely seems to be getting better. I would say that I've been using Grok, Gemini and ChatGPT pretty regularly, and I think they're definitely very competitive in and depending on what model that you're using. And I do think Gemini is getting better. So we'll have to see. But a big concern it's on the search. Big acquisition.

Going after Wiz. Deployment of AI for cybersecurity. Super important. So good business. Worried a little bit about the traditional part of the business on the search side. Management team, certainly not concerned here on on what's happening, with the management team and, I think, you know, maybe the concern is that they're not moving fast enough.

And so but the big acquisition, I think, is, you know, interesting. And I think it's worth paying attention to. On the valuation side, you know, we talked about this in the episode, you know, about 17 times, for Google and the year to date number, minus 20 and the one year minus two. So the valuation, you know, looks relatively attractive compared to the other Mag 7.

But, you know, to be careful, you know, about what's happening on the business side. I think that's why that valuation is there now, balance sheet still clean like everybody else. Now Tesla. So that was sort of the second pack. Now moving on Tesla by itself in the third pack. Why is it in the third pack? Well, Elon Musk is sort of in the mix of this administration.

And that has obviously led to a lot of focus, and a lot of it negative, for the brand and so that that's coming, you know, on the business side, you know, without that, maybe, you know, it's, you know, much more positive in that regard. So certainly probably not helping, on the brand right now.

But, you know, the business, obviously are the cars number one, the power. But you you talk about the deployment, Full Self-Driving, which is real world artificial intelligence. I think they're definitely the leader here. And they're going to be deploying those robo taxis in Austin later this year in 2025. I think that's super important to watch.

And I think the upside related to that is enormous. If you talk about, you know, cars are used like a 10th of the time, you know, that they're capable of on the roads and you unlock all that time. Obviously, you turn those depreciating assets into cash flow assets. And for the people that own those cars, they can put them on that network.

And then the other cars that they deploy, in their own network, that's obviously an enormous market. The Optimus, platform for the autonomous, humanoid robots obviously has a big total addressable market. I think everybody would have one of those. And the power business, is gaining steadily. And so the Megapacks are our super important piece of what's, you know, been deployed, at scale, the utility, scale batteries and how quickly they can harmonize.

And the software, the Autobidder software that goes along with that. Super important. On the on the management side, Musk obviously very busy. Lots of jobs, lots of companies, and including DOGE. And so, with the government. So, you know, people are definitely a little bit concerned about that. We'll have to see how that plays out.

You know, he has said that he'll be out of that role. 2026. And so we'll we'll see what's happening there. On the valuation side, this is where, you know, this is part of the reason they're sort of at the their in the third bucket here, you know, even after the sell off. It's so year to date it's off, you know, 40% the one year return, 40, 41% positive, minus 40% negative for the year to date.

But even after that, you're talking 92, 93 times forward. So really not cheap. Clean balance sheet, though. Also not worried. Not as maybe as strong as some of the others, but clean net cash. Not worried about the balance sheet there. So we quickly ran through the Mag 7: Amazon, Nvidia, Meta, Microsoft, Apple, Alphabet and Tesla. And again I would group Amazon, Nvidia together, Meta, Microsoft, Apple and Alphabet together and Tesla in that third bucket.

And so obviously this is not investment advice. Do your own work. But for our analysts at the Investment Institute, we own all these companies and across our portfolio. So we got to think about what to do and the markets are moving all over the place. But that's the time you high grade your portfolios. You go after the best companies for the long term, and you think not in the short term, but you think about in the long term.

What can these companies do? How do how do those management teams position themselves? And you move forward? With that, I want to say thanks for watching, and we look forward to seeing you on the next episode of “Market News with Rodney Lake”.

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