OpenAI Breaks From Exclusive AI Pact With Microsoft

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0:55If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But in life, even the best strategies can't prevent every bad day. A fire, a loss, a disruption that demands immediate attention. When that happens, what matters isn't just what you planned, it's who shows up. That's where Cincinnati Insurance comes in. For more than 75 years, they've helped individuals and businesses navigate life's toughest moments with care. expertise, and personal attention. Together with independent agents, Cincinnati Insurance focuses on relationships, not transactions.

1:33Their approach is grounded in experience, follow-through, and trust built over time. Bad days happen, and when they do, you deserve an insurance partner who understands risk, respects what you've built, and is ready to help you move forward. The Cincinnati insurance companies. Let them make your bad day better. Find an independent agent at c-i-n-f-i-n.com. The thing about AI for business, it may not automatically fit the way your business works.

2:02Ed Ludlow:At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. Bloomberg Audio Studios. Podcasts, radio, news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

2:50Here's some news out today. I think it's important, but I'm not sure. Microsoft will no longer pay revenue to OpenAI. Instead, its partnership with the leading artificial intelligence firm will not be exclusive going forward. Microsoft stocks down just fractionally on the news here. I'm not sure what to read into it, but our next guest does know. Ed Ludlow, BTEC co-host. He is in our San Francisco studio. studio. Ed, can you explain this news to us and what it means?

3:17Ed Ludlow:I was, this is important and it's the latest development in a series of a changing relationship. And so Microsoft critically important mega cap tech name and open AI, let's call it the most profound AI company in this generation of AI companies. And basically what Microsoft is allowing OpenAI to do is sell its products elsewhere. For a long time, they've been tweaking the exclusivity by which Microsoft gets first dibs or first access to OpenAI's tech and also is a major distribution platform for OpenAI's tech to third parties. So the net result is like OpenAI can now run but also sell its models on any cloud.

4:02Ed Ludlow:And you'll note that our colleagues in BI, their main takeaway from this is that Amazon will be a big beneficiary of that decision. But there's also some mechanical stuff. So believe it or not, Microsoft is the biggest shareholder of OpenAI. It has like 27 % stake. But for a really long time, it's been paying money to OpenAI as a share of revenue from revenues it generates using OpenAI's tech. That's quite complicated. So that's now ending. And OpenAI is a major customer of Microsoft, even though Microsoft is one of its main investors, and it will keep paying Microsoft to use its cloud services.

4:37Ed Ludlow:And that's the net takeaway. All right. So perhaps this is all kind of in the lead up to OpenAI eventually going public, which is expected to happen sometime this year. I also wanted to get from you this story that we have here about China blocking Meta's$2 billion acquisition of this AI firm called Manus. It's an AI startup. Tell us a little bit more about this and whether this would really get in the way of Meta wanting to acquire this company. Yeah. Yeah, I mean, the way to look at it is that it shows China still having power and an ability to assert control over technology that originates from that country.

5:12Ed Ludlow:You know, that is the main part of it. Meta wanted Manus to kind of build out their agentic offering because that is what Manus does. It makes AI agents. But, you know, the one reason I suppose this story is so well read on the terminal is that we are just a few weeks away from President Trump meeting with Xi Jinping. And the access to technology in either direction across borders, you know, that has been a point of negotiation, right, in the relationship between these two countries. Is there any expectation just along that front, Ed, that things will ever get better? I can't see a world where I'd want China to have our best tech.

5:51I can't imagine they'd want us to have their best tech. Where are we on that?

5:55Ed Ludlow:Yeah. Yeah. The net position of the administration is that they do not want Chinese entities, companies, and other government entities from having access to America's best technology. But that has largely focused on the picks and shovels, the chips that are being used to develop that. The other way around, the export of software from China to U.S. has been a much grayer area. You'll see the other big headline on the terminal is DeepSeek, right, which is a very competent maker of open source models. And so the main takeaway in this sense is that the direction of travel is China trying to cut off access to its own companies from American capital, both intellectual and financial capital, which is, you know, how the president passes that is going to be very interesting to see.

6:49Stay with us. More from Bloomberg Intelligence coming up after this. For years, the conversation around Bitcoin was the same. Is it real? And does it belong in a portfolio? While others debated, CoinShares got to work. In 2015, they launched the world's first Bitcoin EDP, regulated, listed and built for institutional investors. Long before the U.S. market caught up. Today, they manage over$6 billion in assets and have remained profitable through every market cycle, including the 2022 downturn. What sets them apart? They're not a crypto exchange chasing trading fees, not a company betting its balance sheet on Bitcoin, not a mining operation.

7:28CoinShares is an asset manager with recurring fees, a fixed cost base, and a business model you can actually model. Now listed on NASDAQ under ticker CSHR. Learn more at coinsharesipo.com.

8:08Thank you. Cincinnati Insurance comes in. For more than 75 years, they've helped individuals and businesses navigate life's toughest moments with care, expertise, and personal attention. Together with independent agents, Cincinnati Insurance focuses on relationships, not transactions. Their approach is grounded in experience, follow-through, and trust built over time. Bad days happen, and when they do, you deserve an insurance partner who understands risk, respects what you've built and is ready to help you move forward. The Cincinnati insurance companies. Let them make your bad day better. Find an independent agent at c-i-n-f-i-n dot com.

8:51Ed Ludlow:The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App.

9:32Listen on demand wherever you get your podcasts or watch us live on YouTube. Back to these markets here. We're going to get an IPO. I think a lot of big IPOs are in the offing here. You're thinking open AI. You're thinking Antropic. You're thinking SpaceX. Exactly right. And it looks like Bill Ackman's purging square IPO, that's going to be starting us off here, at least in this period of time. Let's check in with Bailey Lipschultz. He does all the equity markets, including the new issue markets. Bailey, talk to us about Bill Ackman. What's he bringing to the marketplace with this IPO? Yeah, so he's bringing a closed-end fund.

10:04So raising some permanent capital, as Wall Street loves to do these days. And as part of that deal, they're distributing shares of Pershing Square proper, which is the hedge fund, which manages the strategies. So that deal is expected to price tomorrow. My colleague, Anthony, he is broke that they're expecting to price it at five billion dollars. Keep in mind, a few weeks ago when they launched this process, excuse me, last week when they launched this process, they said they would raise five to ten billion dollars. So at the bottom of that range, and if you think back two years ago, without the sweetener of the hedge fund, they wanted to raise$25 billion.

10:36That ultimately was pulled. So this has been a few years in the making, but it does seem like we'll cross that finish line tomorrow. Which part of this offering do investors want more, the closed-end fund or the exposure to the hedge fund? Hedge fund. I mean, closed-end funds historically, or at least recently, have traded at discounts. The London market, where he currently has a closed-end fund, trades at a wider discount than here in the U.S. But just for reference, that right now, according to our data, is at a 32 % discount. So you're talking about buying something that, if you have the long-term vision in Bill Ackman and Ryan Israel and the team at Pershing Square, you can buy it now and you hold on to that closed-end fund for as long as you want, and you at least get access to Pershing Square, the management company, in the interim.

11:21Is that discount, that 32 % discount, is that bigger than typical? Yes. So why is that? Why is he getting a discount? Why is he having a hard time pushing out this deal in the U.S. market? Well, it's wider because these things are more thinly traded in the U.K., in Europe. So that's one part of it. It's also the fact that these are essentially going to be identical products. So if you're an investor, why would you not cut a check today to get in at least at NAV and then get the bonus shares? I mean, the counter argument is why would you not buy something that's 32 percent on sale, which is also fair.

11:55The other argument when you talk to folks in the closed end fund space is the only reason to get an incremental buyer is someone who believes in the vision going forward. So define first what a closed end fund is. It's everyone knows what an ETF is. Yeah. It's essentially that, except for you can't withdraw your money. So if you buy, you participate in this at$50, you can sell it in the market. It's like these BDCs and other other products that are permanent capital. You can pay the sticker price, if you will, but you don't get access to what the underlying assets actually are worth. So if you buy at 50, it trades at a 10 % discount.

12:27You turn around and sell it at$45, you lost$5. But if you buy the Pershing Square London deal at a discount or buy it today, you don't necessarily care about the discount. You just care where you can turn around and sell it in a minute, a day, a year. Just remind us again about what Bill Ackman's investing thesis is because he was one of the most vocal activist investors. We can all remember Herbalife and what he tried to do there and didn't get done. But he's not really pursuing that path anymore, is he? No, he's become kind of a relatively long view, taking a longer view, I guess you could say.

13:02I mean, the counter argument is he has exposure to Brookfield. He has exposure to Howard Hughes, which has been a big position in the company. Also loves the technology companies. Amazon Alphabet has been backing and tweeting ad nauseum about Fannie and Freddie and what they can bring. Yes, always. So not necessarily your old school activist where you come out with some reports and go head to head with management now kind of taking a longer view. And again, the counterpoint to some from some investors is if I get paid to invest money, why am I turning around and paying a fee to invest in someone else who's investing money?

13:32And when you look at the portfolio, yes, he's had some big winners and has done well in the long run. but Amazon, Alphabet, Uber, Universal Music Group, they aren't, according to some people I talk to, necessarily novel names that are kind of under the radar, if you will. So I guess just 30 seconds left, how has this performance been? I mean, has it been... Depending on their data, pretty good. But if you use the London-based closed-end fund as a comp relative to the U.S. market, it's underperformed on, I believe, a one-year and two-year. Longer out has outperformed. It kind of just depends where you slice and dice that.

14:07But all things considered, it comes back to the whole debate around do you want active money or do you want passive money? It's really hard to outperform the S &P 500 right now. Yeah. And this is going to be mostly institutional money. According to Anthony's scoop, about 85 percent institutional, 15 percent retail. But still, if you do that math, it's about 750 million dollars of retail money. So not a poor performance by any stretch. Stay with us. More from Bloomberg Intelligence coming up after this. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility.

14:43But in life, even the best strategies can't prevent every bad day. A fire, a loss, a disruption that demands immediate attention. When that happens, what matters isn't just what you planned, it's who shows up. That's where Cincinnati Insurance comes in. For more than 75 years, they've helped individuals and businesses navigate life's toughest moments with care, expertise, and personal attention. Together with independent agents, Cincinnati Insurance focuses on relationships, not transactions. Their approach is grounded in experience, follow-through, and trust built over time. Bad days happen, and when they do, you deserve an insurance partner who understands risk, respects what you've built, and is ready to help you move forward.

15:27The Cincinnati insurance companies. Let them make your bad day better. Find an independent agent at c-i-n-f-i-n dot com.

15:36Ed Ludlow:So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. not noise proof of how we can help companies get smarter by putting ai where it actually pays off deep in the work that moves the business let's create smarter business ibm everyone has been there your team's feedback is scattered across emails chats and sticky notes it's a mess but pdf spaces and adobe acrobat gives you one collaborative workspace to streamline every file and comment.

16:21So if you need six departments to finally agree on a proposal, do that with Acrobat. Need to turn a mountain of feedback into one plan of action? Do that with Acrobat. Want to stop searching for files and finally get everyone on the same page? Do that, do that, do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. We're looking at earnings season unfolding right now.

17:02Of course, this is one of the busiest weeks. We had Verizon reporting results this morning after its larger rival AT &T had reported last week. Verizon surprising investors to the upside with phone subscriber gains. The first time that it has added phone subscribers like net positive in the first quarter since 2013. So let's bring in John Butler. He's our senior telecom analyst for Bloomberg Intelligence. John, is this credit to the new CEO, Dan Schulman, that Verizon has reported this phone subscriber gain? Yeah, I think so, Scarlett. I mean, he really, in many ways, brings a breath of fresh air to this name.

17:43You know, he's bringing a level of rigor to managing the company. They're being more disciplined, I would say, on the promotions front. Specifically, they have pulled back on providing aggressive handset promotions. He has deployed AI across the organization, So we're seeing very dramatic operating expense cuts, and that's flowing through to cash flow growth. It also increases the safety of the dividend, which they described as, quote, ironclad, unquote. So for a high-yielding stock like Verizon, that's great news to investors. And I think the that flow through to cash flow that we're going to see in coming quarters coming out of all these expense cuts really, I think, is helping to boost optimism here.

18:36John, how do people, investors, look at this wireless space and kind of position them, the T-Mobiles, the Verizons, the AT &T's? How do investors play it? Yeah, I think they're all different, Paul. You know, AT &T is trying to reposition as more of a broadband growth story. I mean, wireless still drives the bus there. It represents well over 50 % of revenue. It does for all three carriers, but I think AT &T wants to be the broadband name. T-Mobile wants to be the wireless leader. They have the most spectrum and increasingly the best 5G network out there. And I think for Verizon, they're looking for balance between the two.

19:18You know, they just closed the acquisition of Frontier, so they have a much bigger fiber territory and a better fiber growth story now. But they also have room to improve on the wireless front. So I would say Verizon, a balanced name, AT &T, a broadband name, and T-Mobile, a 5G leadership name on the wireless side. Who is Verizon taking these customers from, these mobile phone subscribers from? Because this is pretty much a saturated market in the U.S. It is, Scarlett. It's a great question. What they're doing now is they're pivoting from being a shared donor. So if you look in prior quarters, they have negative numbers almost every quarter in terms of their postpaid net ads.

20:03They were really net losses. This quarter, thanks to Dan Shulman and a change in strategy there, we're seeing postpaid net ads driven mostly by improved churn so they're not losing subscribers anymore they're being very disciplined about not raising prices anymore they've sent that message loud and clear out to the subscriber base and they're adding more value to their plans through content and other added features on the margin i think they're picking up a little bit of share and it's always lit across the board it's hard to pinpoint But it might be a little bit from AT &T, a little bit from cable, a little bit even from T-Mobile.

20:48And they also, by the way, have a lot of upgrade activity from their prepaid plans into postpaid, which then get counted as postpaid net additions. John, the telecoms business is a pretty capital intensive business. Is there another cycle that the industry needs to go through or is kind of 5G kind of where we are at the moment? So, we are what they call mid-cycle with 5G, Paul. These generational upgrades in wireless tend to happen every 10 years. We're about five years plus into it. So, I would say as we get to 2029 and 2030, certainly, we're going to see an upgrade of the radios and the technology to 6G.

21:35But we have a few years to go yet. I think it's an important question for Verizon because for them, they haven't deployed all their 5G spectrum yet. So in my mind, they have room to grow a little bit in terms of the quality of their 5G network. And getting back to Scarlett's question about where net ads are coming from, I think is the network quality improves, that churn improves. so you're not losing subscribers and you're enticing new people over the network. So we're mid-cycle, to answer your question, and about four years away from that 6G upgrade. John, T-Mobile will be reporting results tomorrow, the 28th.

22:22Now that we've heard from AT &T and Verizon, what's the element of surprise going to be for T-Mobile? I think the element of surprise there might be on the broadband side. Again, Scarlett, they have the best wireless network out there right now with the most spectrum. So spectrum equates to capacity to handle a lot of data. They have been a leader in fixed wireless access, that ability to provide a broadband link into the home over your wireless network. and Verizon was weak there. And my read through there was T-Mobile may have picked up share and fixed wireless access. So if there's a surprise in store with T-Mobile, my guess is it's probably going to be on the broadband side.

23:11Stay with us. More from Bloomberg Intelligence coming up after this. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at CINFIN.com. The thing about AI for business, it may not automatically fit the way your business works.

23:57Ed Ludlow:At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. You need to make a huge presentation in an hour. Adobe Acrobat uses AI to take all your documents and generate a presentation with a single click. Build slides quickly and streamline the process. Need a last-minute pitch deck? Do that with Acrobat.

24:38Need to level up your presentation design? Do that with Acrobat. You have 30-plus documents that need to be simplified into a proposal. Do that. Do that, do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Scarlett Foo and Paul Sweeney live here in our Bloomberg Interactive Broker Studio streaming live on YouTube. There's been some unusual news, I'll call it.