OpenAI Targets Banking, Warner Bros. Considers Sales Options

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1:59Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, OpenAI is working on financial models that could one day replace the grunt work of junior bankers. Plus, President Trump announces a rare earths deal with Australia to counter China's dominance. And Warner Brothers Discovery says it has expanded a strategic review of the business to maximize shareholder value. And that's where we start. It was the breaking news of the morning that moved markets. Warner Brothers Discovery off-session highs up 9%. They are looking at a range of strategic options, including moving forward with the existing plan to split the business into cable TV and then studios and streaming.

2:47But other options, spinoffs, selling some or all of it. We will get a lot more on this story later in the program. It is the big move of the day. Another top story that we are watching. OpenAI is building out financial models that could one day replace the grunt work of junior bankers across the banking sector with the help of a secretive project inside the startup. Let's get to Bloomberg's chief Wall Street correspondent, Sridhar Naderanjan. This is based on a document that Bloomberg's seen on Project Mercury and conversation with sources. What is Project Mercury? What is it that OpenAI is working on here?

3:24Good question, Ed. According to our reporting, the reporters in Dubai spoke to sources at OpenAI, got their hands on some document, and the so-called Project Mercury is effectively OpenAI hiring ex-investment bankers, that's contractors, people who can help with the modeling tasks, who can help the AI with training it on how to write prompts, how to execute models, and how to make sure that they could get into a position where they can do some of the tasks that are currently performed by associates and analysts on live deals, such as financial modeling, their work on PowerPoint presentations and Excel is something that takes up most of the work hours for a lot of these junior bankers.

4:02It's a lot of repetitive tasks. It's a lot of simple tasks. And there is very little strategic work there and perhaps not even a whole lot of analytical work there. So if you could use technology to replace some of that, the hope is that you could free up some of these junior bankers to do some of the bigger picture stuff. So it will need an evolution of their skill set, but also could put them into better use that would not leave them jaded early in their career. Sri, I know the team over at Liquidity are probably watching the show right now, worried about their audience as well. This is the origin of the please fix meme, right?

4:42This is investment bankers, junior analysts who spend 80 to 100 hours a week working in Excel, on these types of tasks. You cover Wall Street inside and out. You know these people. Just explain earlier at the top of the show, I said grunt work. Go deep into the grunt work that OpenAI wants to displace with custom financial models. I mean, you have to think about when you're working in a live deal, what really are the requirements? If you are dealing with a client, you want to come up with material, with presentations, whether it is suggesting potential transactions, coming up with valuation models, industry comps, looking at the overall landscape out there.

5:21That is effectively a lot of open source research that needs to be done. That is using a lot of your Excel skills and making sure that you can do the modeling that is inputting numbers again and again, replacing numbers, putting in new estimates, and coming up with figures that could outline various scenarios for your clients. That is stuff that you could argue that technology can do, can replace you in doing that and can do it better. And that's where the real promise here comes. But also remember, and this is something where you spoke about liquidity, but anyone who's followed the space for long knows that when you talk about junior banker workers, about those 80 to 100 hour work weeks, often that figure is magnified because bankers, once they finish their work, are waiting for hours on end, waiting for feedback from their managers who then come back with immediate responses and fixes that you need to do.

6:15And there is a revision and you follow that cycle repeatedly till your manager is satisfied. So perhaps what you also need is an AI solution that can take care of that manager who will stop focusing on those very little small font level changes and allow you to focus on big picture stuff. An OpenAI spokesperson said the company employs a range of experts to work generally on models but didn't really address our reporting specifically. Bloomberg, Sridhar, Nader Ajan, thank you very much. In other news, President Trump announced a rare earths deal with Australia yesterday aimed at countering China's dominance in the supply chain for critical metals.

6:53The move comes ahead of expected trade talks between the U.S. and China, with the president expressing optimism about reaching a fair deal. I expect we'll probably work out a very fair deal with President Xi of China. so most of you will be with us. It's going to be very exciting and I think we're going to work out something that's good for both countries. Bloomberg senior tech editor Mike Shepard joins us from D.C. A fair deal. Go into what a fair deal is to the best of our knowledge and our reporting and what happens next. Well the fair deal will be in the eye of the beholder and the number one beholder here of course is President Donald Trump and it's important to And note that during that same conversation yesterday with reporters, he reiterated his threat of triple digit tariffs against Chinese goods.

7:40If Beijing did not come with a satisfactory offer in his eyes. And we have seen the president and his advisers in recent days lay out some of their key points and key sticking points in the negotiations. Of course, first and foremost, is rare earths. is something that has dominated the conversation for the past two weeks since China imposed export controls on these minerals that are so crucial to various points in the supply chains for autos, for consumer technology, and even defense material. Now, Ed, what we're watching also, though, is pressure in other areas. Yesterday, we saw Jameson Greer, the U.S.

8:18trade representative, take aim at another area where China has tried to exert its influence over the supply chain, an area where it has an advantage, and that is shipping. And he warned that sanctions against U.S. units of a South Korean company were counter to these kinds of conversations. The deal with Australia is being interpreted in D.C. at least as kind of a counter move to what China's been doing. What's our reporting on that? Well, it very much is a counter move. The Trump administration is trying, this is the latest in a series of steps to try to break China's grip on the rare earths market and reduce U.S.

8:57dependence on China as a source of critical minerals. Now, this is a long-term play, and the U.S. has tried to put investments. It has already had three government moves to invest in companies that specialize in rare earths. We saw one just a few weeks ago when Canadian Prime Minister Mark Carney visited Washington and met with President Donald Trump. The U.S. announced a 10 % stake in a Canadian miner called Trilogy and also the opening of a road. But this is a longer term play. It will take a while. Australia, though, is promising what it says is a faster pipeline to these rare earth elements.

9:33It says that it can provide 30 to 40 out of the 50 critical minerals that the U.S. has identified as being needed most. And it likes to refer to itself as the world's periodic table and has all that expertise in mining. How quickly it can be brought to bear and whether this functions as some sort of pressure in the trade negotiations between U.S. Treasury Secretary Scott Besson and his Chinese counterpart later this week remains to be seen. But it is certainly something that the president will try to bring to his conversation with Xi Jinping expected to take place next week. Bloomberg's Mike Shepard, thank you very much.

10:09Let's bring in Rob Fummel, Senior Portfolio Manager at Tortoise Capital, who argues the U.S. needs to develop its rare earth supply chain in the same way that it rethought energy supply chains. Tortoise Capital has approximately$9 billion in assets under management. The focus, energy and power infrastructure. So to start, Rob, your reaction to the deal that the president did with Australia on rare earths and what it signals to you more broadly about what they'll do in supply chain. Yeah, well, as you highlighted, so the supply chain is really important. and you need more rare earth minerals to come to the U.S.

10:41for consumer electronics, and really just the evolution of everything, including AI. And so the rare earth supply chain needs to really develop kind of like the energy supply chain has evolved. And if you think about the energy supply chain in the U.S., the U.S. is the largest energy producer in the world. AI is going to need a lot of electricity. The U.S. has a lot of natural gas, and so that's a benefit. And that allows the U.S. to maintain its AI dominance because of the natural gas and the ability to produce low-cost electricity in the U.S., and that's just because the supply chain in the energy sector is very well developed.

11:13So, rare earth needs to follow a similar fashion. A big story on the Bloomberg Terminal today, written by my colleague Carmen Reineke, is titled, AI Boom Transforms Utilities from Haven to Soaring Growth Stocks. And we're looking at the idea that the utility sector is up more than 40%, third best-performing group in the S &P 500. This is, to an extent, your wheelhouse. You are trying to participate in what's happening in AI broadly through energy, infrastructure, and production. What do you make of that reporting, Rob? I think it's fantastic, and I think there's a lot of room to run. If you just think about all these cool things that AI does and the fascinating things that AI does, really the foundation of all of that are two things.

11:57It's data and it's electricity, basically. And those are the foundational elements. And so at Tortoise, what we're doing is we're investing in the critical enablers, basically, and the infrastructure that enables all of these great AI opportunities going forward. So there's a lot of investment opportunities in electricity, as you highlighted. We need a lot more electricity. Basically, the next decade is going to be the age of electricity. We think that electricity is going to become the new oil. The U.S. is going to maintain its global AI dominance because of its ability to produce low-cost electricity.

12:28So companies like in my backyard, Evergy, it's actually a classic example of what you're talking about. It's going to actually increase its growth rate by almost 50 percent because there's new AI data centers coming to Kansas City, Missouri, where I happen to live. But this is happening all over the place. We're even having Bitcoin miners, basically. And this is really the interesting part. If you think about it, Bitcoin miners are actually converting, transforming from being Bitcoin miners to data center operators. Why? Well, because they have the electricity and the ability to simply transform their business and become really an entirely new business model.

13:06And then their valuations are being uplifted as well. Companies like Riot Platforms, Wolf, Atero Wolf are a couple of examples of companies that have been doing this. What you are trying to participate in tangibly, Rob, is the building of data centers or what will power them. But when I look at the portfolios that you manage and some of the ETF products, you've kind of broadened out to some of the names that we would more classically associate with servers. Dell is an example. What prompted you to make that move, go beyond the energy thesis? Well, we just think, if you think about AI, AI is the future, right?

13:44AI is the future economy. So if electricity is the new oil, but if you think about really what we're looking at is we don't think, we think what's underrepresented in investor portfolios is simply this, the enablers, the infrastructure, the companies that are enabling all of this AI development. So what does that mean? Well, that means data storage devices, network switches, those are just a couple examples. Electricity, electricity generation are another couple of examples. Cabling, as well as servers. And so all of this underlying infrastructure is really, really important. It's the foundation, really, for the future of AI.

14:19And it's these enablers that we think aren't represented in investor portfolios. So we created a product called the Tortoise AI Infrastructure Active ETF that really offers investors a way to invest in the active enablers. Rob Fummel, Senior Portfolio Manager at Tortoise Capital. Thank you so much for joining us here on Bloomberg Tech. Now, coming up, let's get back to that story. Warner Brothers Discovery says it's reassessing its strategic options as multiple parties are said to be circling the media giant. We have more on that next. This is Bloomberg Tech.

14:57Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at Vanguard.com slash audio.

15:39That's Vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophorus. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations.

16:14We do all this live each and every weekday that bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. Told you at the top of the show, shares of Warner Brothers Discovery are up significantly. After the company revealed it's expanding a strategic review of the business, The owner of CNN, HBO and the Warner Bros.

16:58movie studio had been planning to split into two companies anyway, but is now considering a wider array of deal scenarios, including sale and spinoff options in light of, quote, unsolicited interest. Let's get to our media editor, Felix Gillette. Some of this we knew about, some of it not so. So the point is, is that Warner Brothers Discovery, its board and leadership are recognizing that the market's putting some value in its different properties. Just go through each of the options that the board says that it's considering. Yeah, I mean, I think now it's officially for sale. We knew that it was basically this was happening.

17:37But now the options they're looking at is, you know, earlier this year, they announced this reorganization. They were going to set it up. The company said that there was going to be the studios and the streaming business on the one hand. separated from the legacy cable TV channels. Then you have, you know, David Ellison from Paramount Skydance jumping in and saying, oh, I'd like the whole thing before the split. And now they're saying, okay, we have interest from other parties for potentially the whole thing, potentially parts of it. In the meantime, we're going to go ahead with this reorganization as we sort through the different options.

18:14But presumably, there'll be a lot of interest in the studio streaming side, less so from the legacy cable TV channels. Right. This jump of 10 % puts the stock on track for its best day since early September. The stock of the entity known as Warner Brothers Discovery. That's a nice timeline. It shows us the evolution of what is now Warner Brothers Discovery. There are media reports out there this morning, Felix, about the names that could be circling. We had reported Paramount Skydance, but it's probably broader than that, right? Yeah, I mean, I think the other names that are being tossed out there that analysts have mentioned, Netflix, Comcast, potentially an Amazon, an Apple, anyone that has a streaming service has to take a look at this because Warner Brothers Discovery has one of the biggest, richest libraries of IP on the planet.

19:09They've got Harry Potter. They've got the DC Universe with Batman and Superman. They've got the Hobbit Universe with all the Lord of the Rings stuff. So that's just some of the franchises. Everyone needs to take a look at this. And so there is going to be interest. Real quick, Netflix after the bell. What's the one thing we need to look out for? I think look at the advertising numbers. You know, they've invested a lot in live events. They've had a very strong quarter in terms of engagement. Their franchises are really kicking into high gear. They had Squid Game. They had, you know, the most popular movie in their history with K-pop Demon Hunters.

19:47So look for that engagement. They won't be talking subscriber numbers, but I'd be very curious to see if they say anything about advertising growth. All they've been saying to Wall Street is judge us by financial metrics, move on from subscriber numbers. I don't know that we can. Bloomberg's Felix Gillette, thank you very much.

20:10Corweave has no plans to bump up its$9 billion bid for data center provider Core Scientific, despite concerns and opposition from shareholders that the offer was too low. CEO Michael Entrader told Bloomberg's Tom Giles earlier in London, the price is fair. We're very comfortable that the way that we have priced it is appropriate for us. If there's someone else that would like to step in, they can step in. But, you know, we're excited. We think it makes sense. We continue to think it makes sense. And, you know, it will go to a vote. But you won't see us bump our price or increase our price. Let's get the analysis.

20:48Bloomberg Intelligence senior tech analyst, Anamag Rana. in July when this bid came in you wrote that it was prudent because of the share price performance of CoreWeave in August you wrote that actually they might have to think about upping the bid a bit because of pushback on October 30 if shareholders are going to vote on it either way what's the current thesis and around yeah and I think you given what the CEO is publicly saying it doesn't look like they're going to up the offer and so you know I think this is probably going to end in probably a stalemate unless the shareholders feel that CoreWeave is the right place for them.

21:23Having said that, if you look at the data center space, there is a lot of demand. So I don't think both parties will regret whichever direction it goes, frankly. So Anurag, help educate our audience. You said the right place for them. What is it that Core Scientific does differently from CoreWeave, which we call on this program NeoCloud? Yeah. So for CoreWeave, it's in the, I mean, the simplest way is they're going to rent out GPUs for you to help with your computing needs. In the case of Core Scientific, they're helping create those data centers. Then CoreWeave is going to put their GPUs inside.

21:59So it's a slightly different business, but at the end of the day, it's part of the same value chain. It's all getting funded by a lot of AI workloads that are out there. So both companies have their own space in the ecosystem, they do slightly different things. Real quick, Anurag, CoreWeave on the demand side and the supplier side is doing a lot of deals. Can they cope with all of this? I think the biggest question is at what pace can people go out and create these data centers and install the GPUs and get their revenue out of it? We actually have so much now in terms of evidence of RPOs or bookings coming in from multiple vendors, whether that's Microsoft, Meta, or OpenAI.

22:43The problem is, how do you go out and deliver on it? His research is must-read on the Bloomberg terminal, Anurag Rana of Bloomberg Intelligence. Thank you very much. Meanwhile, Amazon says its cloud services have now been fully restored after a 15-hour outage that impacted a variety of websites and apps, but its reputation has taken a hit. Blue Mox Matt Day, who covers Amazon and AWS, joins us. And that was the headline of your day two story today. We've looked at how analysts have reacted to this. How severe was this outage compared to AWS historic outages, for example? So it looks like it's at least their most significant in several years.

23:23We've got to go back to about 2021 for when it's even in the same ballpark. 15 hours is a lot. Like the typical AWS hiccup, they'll announce something is on the fritz. You know, a couple of stats updates later, maybe a couple of hours later, things are back. This was a big one. This took out their biggest data center region and took it out for most of the day throughout the U.S. East Coast workday. This is a really big deal for a company that prides itself on uptime and reliability. What was difficult in covering this in real time during the show yesterday was Amazon shares were higher. So you're like, OK, that's an interesting reaction of the market.

23:54But what helped us understand it was the scale of which AWS or the Internet relies on AWS. Just explain their position in cloud computing and maybe by extension why it was so severe and widespread, therefore. So Amazon basically invented the business of selling rented computing power. They're the largest actor in that space, something like a third of the market. And really just the Internet goes through their data centers, especially in northern Virginia, right? You know, Apple streaming, your phone bill sometimes. I tried to pay mine yesterday. It was not down. So they're just a key hub for so much of capitalism, frankly.

24:30And if it's not them, it's one of their rivals like Microsoft or Google. And over a two-day basis, the stock's up 4%. Anna Raghana of Bloomberg Intelligence just on the show. And in your story, you cite his research, which is that what could the potential reaction of customers be here to AWS? Maybe they'll look at spreading their workloads across different cloud providers. Yeah, you can see some hedging bets, which is a trend we've seen in recent years anyway. way that companies rather than relying on a single cloud provider, they might take a step back and move their business among the big guys.