Good morning, everyone. Welcome to "The Pulse." I'm Francine Lacqua in London. Tech driving markets as more details emerge about OpenAI's estimated revenue. The latest numbers suggest weakness in Wall Street technology shares may be contained after yesterday's selloff. Let's bring in Charlie Wells. Good morning. Bloomberg understands that OpenAI is expected to reach or exceed $70 billion in annualized revenue by the end of the year. There is a little bit of discrepancy in the numbers.
That was causing a lot of jitters in the AI space yesterday. There was some confusion about how much annualized revenue OpenAI would be making. Annualized revenue is a figure these tech companies love because it can show momentum. The issue here is that that annualized revenue can be calculated in different ways at different companies, and that appears to be what happened yesterday in the tech markets, which are already quite jittery given the elevated yields that we're seeing and the competition for capital. Let's flip and take a look at what happened yesterday because of questions about OpenAI's annualized revenue. Look at that drop there. A significant drop. Looks like it has been contained. OpenAI calculates that in a different way than Anthropic. That seems to be causing the consternation.
Usually they evade. We have seen a data center abandon its IPO.
This was slated to be one of the biggest IPOs in Australian history. They say they are creating AI factories. What this shows, this pullback from the IPO as investors started to look into the books, this shows a polarization of some investors starting to question the ability for these AI companies to really reach their revenue potential to meet the valuations. But then some investors still back these companies, are still excited about them. The question is, can this company justify all of the capital it needed to build those AI factories? What Bloomberg learned is they are looking for alternative funding measures and may be attracting significant interest in that. That is what we're going to watch. It speaks to the polarization that we're seeing in AI. Investors who see the momentum and are questioning it enough that the IPOs at this scale can start to fall apart. Francine?
You're SoftBank, you're raising billions more, it is probably working.
Looking to raise some $100 billion from investors in the Middle East. The strategy here is striking. What it looks like he is trying to do here with SoftBank would be to acquire companies and use AI and other technology to improve them and make them more efficient. Why that could be attractive to investors and why it could be successful is this is a key use case for AI. It would be making companies more efficient by using this technology, bolstering that narrative that we have been hearing that has been propelling SoftBank so far.
Thank you so much. Charlie Wells with some of the main stories we're watching today in the world of tech. Mastercard is one of more than 100 companies backing a stablecoin pegged to the U.S. dollar with the support from the Trump White House, the latest sign of the digital tokens making their way into mainstream payments. Michael Miebach is the chief executive of Mastercard. So good to speak to you again. Thanks for coming in. I love speaking to digital companies. Does it hurt business or can you actually make money on it?
Fundamentally, digital currencies is another way to move value, exchange value. We expect the financial ecosystem of the future to consist of card payments, stablecoins, you name it. It is there. It is real. From a network perspective, we're a large financial network. Obviously, we'll offer that. We'll offer that to our banking partners. We got together with a set of other companies to create Agora to basically create a stablecoin particularly focused on moving money instead of investment purposes or whatever else the purpose might be. That is taking off. It is live. The coins are being minted. We'll see where it goes. From a network perspective, we make money when we move the value for somebody else.
It is not a threat. Is it a threat you're trying to adapt to?
No, I think it is yet another technology to move money. I don't look at it as a threat at all. I look at it as an opportunity. All of these payments still need to do what consumers expect from them. They are well protected. If something goes wrong, what happens? Stablecoin is a token. We put a wrapper around it, and that's what we do and how we make money.
How do companies understand how they navigate this world? What happens to stablecoins or digital currencies?
I'm having meetings in London today with commerce and large partners. I can predict stablecoins will be there. Digital assets will be there. You can tokenize bank deposits and tokenize equity markets. This is a conversation that comes up all the time. Bank CEOs saying, how can I use that for my customers? They are saying we're here to help you with that.
Is there something that always comes up that you -- give us an idea what the future in this space looks like.
A recurring question is, if you are a bank and your customer is a large corporate, it is the question about use case. What is the use case? Has the most use case where this technology works? We have an existing system. Why do you need stablecoins now? The area of cross-border cases is rising. It is really the focus on saying the technology is there. Where can I apply it, and what is your experience with Mastercard as we step into that?
What do you see as the biggest growth opportunity at the moment?
I think it is the -- this is today, if you make a cross-border payment, it takes days. The fees are unclear. From a working capital perspective, from a company, if you could move the money instantly, it would be so much better. It is an obvious use case now. Go and buy your coffee where the stablecoin is not an everyday use case. Somewhere in between, you'll see use cases merging. We keep looking for that and making sure this technology --
How do you think central banks are thinking about this? I have had discussions. They say it is unclear whether you can put 300 euros in them. Whether people would go through the trouble of opening an account like that?
If you take a step back and say what are central banks around the world doing when it comes to this kind of technology, from a stablecoin perspective, the central bank digital currency, the one we launched, is essentially a private sector initiative. Most governments around the world focus on wholesale solutions, better money movement for the broader financial ecosystem. There are some smaller group of central banks that are focusing on retail-oriented digital currencies. That is in its planning phase. We'll have to see how it goes when it launches. The point you just raised, you have to open an account with a central bank. How will that work? How will the balances work? What does it mean for commercial banks? There are still conversations going on around that, but it is in a planning phase. We'll see where it goes for now. For use cases, for consumers, there is a lot of choices to pay. Here in Europe, more payment choices than there have ever been before. How does it fit together?
What is Mastercard's ideal scenario for this? The investors already in this space have sizable investments, so you also are actively trying to poach them. Is that the offering?
So the ideal scenario for us is, as always, there is decent conversation on a level playing field. We want to compete. The digital euro, there is other initiatives in Europe coming up to say what is the payment ecosystem? I think it is really a world of multiplicity and choice for consumers. And here we feel we're particularly well positioned because we have a global network, the trust layer that I talked about. We're particularly good at the cybersecurity and fraud management side of things. Not just getting money from A to B, but what happens if something goes wrong?
Is AI a good or bad thing? It must multiply accounts and make it more difficult to manage.
As we have been discussing throughout the week, we have been on the show, it is fundamentally a good thing. It comes with some additional risks. When you look at the threat landscape today, AI is making the fraudsters and scammers as much as the defenders. Many companies are employing AI to make their processes better, but using the same technology to defend. The frontier models are very good at identifying vulnerabilities. We're actively doing this. Our commerce is doing this. You basically can patch much more quickly. That is a good thing fundamentally. But there are systemic risks that come with AI. Agents work together. Those are risks that are not fully addressed yet, and where industries dealing with these technologies have to move very fast. We're ahead of that. Our customers are coming to us and saying, how can you help us with that? AI more fundamentally is we have a large data set. That's where we show up on the scene with our commerce and say, you employ AI and we can help you to deal with the threats from that.
Are banks relying on you more because their own models are threatened by AI?
They do. We have a very large cybersecurity business. We know where threats are coming from. We bought a large company. Banks are coming to us and saying, tell us, should this transaction go yes or no, and where is the broader threat coming from, somebody trying to get into any system? It is not just the transaction fraud. It is the broader set of cybersecurity risks that affect our banking partners as well as our retail partners. One of the fastest growing parts of our business.
Talk to me about consolidations. What do you make of the takeover attempts that we heard about? Are you expecting your space to get much more consolidated?
When it comes to the broader payment industry, I think we're going to have more solutions out there and more companies. AI will enable a wave of new startups that are coming in. But they are mostly focused on making lives better for small business and medium-sized companies, giving them better payment solutions. Many companies out there do that. As more people see the benefit and make the payments, that is fundamentally a good thing for us. As a network, there are other network providers out there that do this around the world, and for that, that is sound competition at this point. We try to cover that across the board.
Europe has been trying to get their own payment system. Will it ever be sizable to compete with you guys?
More choices than ever before. Private sector initiatives, they cut across now. Your Spanish telecom-based payment network partnering with Polish networks. Various -- so many solutions out there. I believe it is going to be more competition in the phase going forward. We are well positioned in that. From a data perspective, cybersecurity and global connectivity. We have been at it for 60 years. We keep investing. Our acceptance points and number of points we can use on the Mastercard have doubled over the last five years. Over 200 million now. Every retailer that accepts an electronic form of payment wants one thing. It is predictability and scale. Anybody who wants to buy from you can use this way to pay. That is incentive for others to come in and try to match that and repeat that. This is not a zero-sum war. It is not like we are competing and here is another solution and we'll just head on. Oftentimes you find ways to partner, particularly on the cybersecurity side. We helped on the cybersecurity side.
Do you struggle to find staff? What we hear recurring from chief executives, a lot of them want to work for AI companies that pay extremely well, and others say with the changing system from the visas from the Trump administration, it makes it more difficult to attract talent in the U.S.
We have our staff is really distributed around the world. Yesterday I was over in Dublin. We expanded our European tech hub, the innovation center for Europe. The prime minister joined us, and one of the things I said in my speech is we have no issues. Dublin is interesting for us because it is a talent magnet. Dublin is a magnet for us. They are a good place for somebody who wants to be working in the cutting-edge technologies to work for. And that is not just in Dublin. That is India and China and all around the world. The U.S. is a big resource base for us. But our staff is distributed. We go where we find best talent.
Thank you so much for joining us. The chief executive of Mastercard. Good conversation with some of the new projects you're working on and the way forward for payment systems. Coming up, the ongoing global tension between bond yields and equities. That is coming up next. This is Bloomberg.
The conversations that matter, the insights you need. This is "The Pulse." I'm Francine Lacqua here in London. 30-year Treasuries has solid demand helping pull long-dated yields off their highest levels. The decline came as President Trump said he would hold off on attacking Iran again until after the U.S. midterms. Let's bring in Andrew Sheets. You have had a wild week trying to keep up with the bond yields.
Morgan Stanley had its ninth annual credit conference yesterday. 1,000 clients attended, 50 companies. At what point do these higher yields impact markets? But I think it is important how resilient the economic activity is. The reason yields are rising matters. The assumption would have been a year ago, five years ago, this level of yields would have hit European growth and U.S. growth. So far, we're just not seeing it.
Why do you think that is? There is like 10 reasons that people point to why they're rising globally.
I think the big reason is growth is still pretty resilient. If you step back, and at the risk of oversimplifying, PMI is above 50 in the U.S., the euro area, and Asia. Earnings growth is strong across regions. M&A activity is booming. Capex is booming in a way we have not seen for a generation. Enormous government deficits across the world, which is helping to stimulate growth. You have an economic backdrop where nominal GDP has a tailwind in the U.S. These are things that I think the markets -- yields will rise to a level that balances growth and inflation. We have not hit that level yet.
What is that level? I had a guest saying 7.5%. 8% is not unthinkable.
I think the real challenge here is we're dealing with two inelastic drivers of it. The hyperscalers, the big AI companies dominating capex. At Morgan Stanley, we have $900 billion as an estimate this year and it rises 60% next year. They are not slowing down at these yield levels. You can raise yields another 50 basis points and say if you believe in AI as tooling, another 50 basis points won't change that. The challenge is you have these big inelastic actors, weaker companies, triple-Cs. I think that makes sense in this environment where it is the biggest, strongest players driving things wider.
How much more corporate issuance will we get from AI builders? How much does that impact or change for Treasuries?
I think that remains an enormous story. This is the biggest capital expenditure cycle of a generation. The estimates keep getting revised up every quarter. I'm sure both of us have seen this. A lot of skepticism around this investment. There are reasonable concerns around it. Yet every quarter these companies come out and they raise their guidance. I think that shows a confidence in the technology. I think that shows that these companies, for the most part, have enormous financial resources. I think they are thinking about this from a cost of capital. Gosh, if I'm borrowing, if I was borrowing at 5.5, now I'm borrowing at 6.5, it is OK. If I believe this is transformative, that doesn't make the difference.
Are there countries you worry about more than others? The U.K. was the first one where the 30-year was above 5%. You see political concerns in France. The spread widens between German and French bonds. In what countries is this problematic?
There is a few ways we think about that. I think, ironically, with the U.K., it is the one G7 country that is narrowing its budget deficit on current plans. Now the market wants to see proof of that. You have a new PM and uncertainty about the budget, so we'll see. But I don't think we see those numbers as in themselves something that is different from what the market would want or demand. When you move into the euro area, it is trickier. You look at France. You look at this widening of bond yields. You have an important Moody's review on October 26. I think you still have questions about will the next leader of France be committed to a change of policy or an improvement of policy? There is a lot of uncertainty. Importantly, in the case of France, the market might have to wait a while. There is a long time for the market to get that uncertainty.
The ECB won't do anything, right?
It is a difficult place for the ECB. One, you haven't yet seen a breakdown of the transmission mechanism. Credit markets have been quite stable. I think that is something the ECB is watching. I'm sure the ECB also doesn't want to create incentives that would suggest that fiscal policy doesn't matter at the European Union level. I think that can drive some steepening of curves. The shorter you are in duration in a government bond, the easier it is to repo it at the front end, and the long end deals with that uncertainty. We need to be watching for that ECB language, but I don't think we're close yet.
What are you looking for in the next couple of weeks in terms of drivers for some of these yields? There is inflation prints in the U.S. Is there anything in Europe you would be watching out for?
We really need to watch the data. It is so important. At a high level, if we think about the seeming conundrum of equities doing well and rates going up, actually rates up, PMIs up is the best environment for equities because growth is good. In some ways, if the PMIs remain robust, it is a sign maybe we were too cautious about the impact on growth. If the PMI starts to turn down, that could be an enormous asset allocation signal. You have this big reversal of equity versus bond allocations.
Is it possible to look at growth without AI capex? Because that's supporting -- I don't know whether it is artificial or not, but it is supporting the economy in ways we have not seen in the past.
It is an enormous driver, maybe driving 60 basis points of U.S. growth, which is a quarter of the 2.2 growth number. It is not the only thing. In Europe, there is less AI capex within the GDP numbers, growth numbers have been rising. AI is a big part of it. It is not the only thing.
Andrew Sheets, global head of fixed income research at Morgan Stanley. Coming up, President Trump says the U.S. will not attack Iran before the midterms. In the meantime, you look at stocks across the world bouncing back a little bit from two days of losses. Oil prices are falling, and concerns over the sustainability of the AI investments seems to be receding. This is Bloomberg.
Good morning. Welcome to "The Pulse." I'm Francine Lacqua in London, and these are the top stories. Risk sentiment gets a boost as Bloomberg learns that OpenAI expects to reach or exceed $70 billion in annualized revenue by the end of the year. President Trump says the U.S. will not attack Iran before the midterm elections in November, despite Tehran escalating attacks in the Strait of Hormuz. Don't miss our exclusive interview with Melinda French Gates about closing the health gap as women struggle to get the health care they need. President Trump says the U.S. will not be striking Iran before the midterm elections, citing negotiations with the Islamic Republic. Tehran-backed militants attacking energy facilities in Saudi Arabia. We are now joined by Morris Reid, partner at Actum, who served in the Clinton administration. Is everything being done through the midterm lens, or is there agency for every department?
I think everybody is sort of doing their own thing. The White House has given up on the fact that the midterms are going to be challenging for them. A lot of these are not coordinated. The whole thing with the Secretary of Defense and the shooting, the public execution, clearly not coordinated with the White House. The situation with the ads being in public, backtrack on that. I think it is going to be a challenging time for the Democrats as well. I don't think it is going to be as successful as they think.
What is the public execution of a terrorist that the Secretary of Defense talked about? It is shocking to see because it is the first time anybody has talked about having been in the U.S. since World War II. Is it legal? If it does not have the blessing of the White House, will it backfire in the midterms?
I think so. I don't know if it's legal, and I don't know if he had the blessing of the White House. Republicans, swing voters, no matter if it's a terrorist or not, no one wants to see this. I think this is medieval times. He is trying to help the president with the macho thing. I think it's an outrageous idea that will backfire.
What vote is the president going after in the midterms? There is worries about inflation, affordability. Is there anything that the president and Republicans can do to?
Small ball. The House is a foregone conclusion. I think it is a plus seven. They are doing tactics. They are trying to save certain seats, so they are putting all their energy in markets they believe they can save. You do not see them going to Ohio, North Carolina. They are putting their energy into markets where they think they can save the Senate, and that's the critical thing the president and White House are focused on right now. They need the Senate to be plus five, plus two, plus three, but they cannot lose the Senate because it will be a really challenging environment for him the last two years.
Does President Trump accept the results if he loses both houses?
I don't know that he accepts anything. I think it is too challenging of a map still for the Democrats to take the Senate.
Does he say it is rigged elections?
He is throwing all the spaghetti on the wall. He is trying everything he can, and the team is trying to rally around him. The fact is the economy is tough. He has sort of had a deaf ear on some of the things that matter to his base. People are hurting, and he has come to the table probably too late. This is why they are playing small ball, very tactical, focused on the markets they know they have an opportunity to keep. Democrats are excited about Texas again. I think it's a waste of time for the Democrats to put their money there.
What are American citizens focusing on right now?
Pocketbook issues. It is always about pocketbook issues. Every election is about, can I put food on the table, can I educate my kids? Sometimes the Democrats get too far on this, and Republicans don't pay attention or do enough on it, but that's clearly what elections are about.
They are not behind the war in Iran?
I don't think that anyone is behind the war in Iran other than the White House. This is a war he started and has got to figure out. The Republicans are scared of the war. It is hurting them clearly. Democrats are probably overexcited about this, and they think it's going to help them. This is a situation America is going to have to figure out, and I think despite what he is saying about escalation, I think immediately after the midterms he is going to go very aggressively back against Iran.
I hear a lot of chatter of if the midterms, it is a real focus point for the U.S. because you could have some kind of civil war if the Democrats are too aggressive towards the White House. Do you have these concerns?
I don't. The Democrats, if they get both chambers, they will probably go too far.
They will go too far to the left. They will start to push some things that are too far outside of the mainstream. If the Democrats win both chambers, I think they would go too far, and their challenge for 2028 will be much more difficult. So it's always good to have bipartisanship, competition on both sides. Bill Clinton had this. He lost in the midterm. He was able to do a lot of grand bargains with the Republicans. I do not see that happening with the Democrats and Donald Trump, but I think it will be interesting to have at least one chamber where the Democrats can push back.
Are the Democrats ready to rally around a candidate?
