Anthropic’s $2 Trillion Test, HSBC Profit Miss, Israel's Tight Election

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0:09 This is the Bloomberg Daybreak Europe podcast. Good morning. It's Tuesday, the 27th of October. I'm Caroline Hepka in London. Coming up today, anthropic files to go public in a test of the AI race with staggering growth numbers and a warning that it may bring about the end of the human race. HSBC misses its profit target in third quarter earnings, even as the lender expresses optimism about the rest of the year. And Israel goes to the polls in the first parliamentary election since the October 7th attacks three years ago.

0:43 Let's start with a roundup of our top stories. Anthropix blockbuster IPO is setting up a defining moment for Wall Street. The startup reported $ 16 billion of revenue in the first half of 2026 when it filed the paperwork to go public yesterday. Now, that is up 1,300% from a year earlier. Bloomberg's Shireen Gafferay says that massive growth comes with risk.

1:11 It is now one of the fastest growing startups of all time. As this S1 confirmed, there was something like over 1,000% increase in revenue in 2025 year over year. So those numbers are staggering. However, the losses are very large and notable. And the key question for investors is going to be, will this revenue growth increase? keep pace in a way that is profitable eventually with these losses.

1:42 Shereen Gafferay there. Just five years old, Anthropic is expected to raise more money in its IPO than any firm in history. Early estimates value the tech firm at nearly $ 2 trillion. Its performance could either cement or capsize Wall Street's confidence in an AI boom increasingly fueled by debt. The director of the IPO initiative, Jay Ritter, says there's a lot of hope riding on Anthropic's listing.

2:10 At a valuation of $ 1. 5 trillion, investors are saying this is a company that in the future could be generating annual profits of $ 50 or $ 100.

2:22 Billion per year.

2:25 Very few companies have ever accomplished that.

2:29 Economist Jay Ritter there. The firm also laid out a long list of unique risk factors, including the possibility that its technology leads to the extinction of the human race. Anthropic is on track to list on the Nasdaq under the ticker and next month. A trio of mega artificial intelligence financing deals yesterday all had one name in common, Goldman Sachs. The Wall Street Bank was named the lead bank on Anthropix IPO, as well as a $ 95 billion Metashare sale and a $ 40 billion SpaceX deal. That puts Goldman in place to receive a windfall of potentially hundreds of millions of dollars. In other news, Israelis go to the polls today for the first election since the 2023 Hamas attack that traumatised the nation. Prime Minister Benjamin Netanyahu

3:19 is seeking re-election, saying that the military campaigns that he has led over the past three years have improved Israel's security. His opponents, led by former Armed Forces Chief Gadi Eisenkot, say the country's longest-serving leader is its greatest threat. Bloomberg's Dan Williams expects the result to kick off complex negotiations for power.

3:42 We should not expect a change in government or clear news on who will rule the next government of Israel, because in the Israeli political system, what happens is it's a parliamentary election. Many parties contesting it, including Netanyahu's, including Eisenkant's, neither will achieve an absolute majority. That's never happened in Israel's history.

4:03 That was Dan Williams, who adds that voter participation is forecast to be unusually high, with tens of thousands of Israeli expats flying in to cast their votes. In earnings news, HSBC has announced a $ 1 billion share buyback after reporting earnings that missed estimates. The lender posted pre-tax profit of $ 9. 6 billion for the third quarter, narrowly missing a company guidance of $ 9. 7 billion. Shares in the firm have risen about 15% this year overall, as investors praise CEO Jorge L.

4:36 Hedry's restructuring efforts. In Brazil, markets cratered after the country's incumbent, President Lula, won a surprise fourth term in office. The country's currency suffered its steepest drop in more than two decades, and some Brazilian stocks fell by more than 50%. Bloomberg's Augusta Saraiva explains.

4:57 Fiscal stability is not necessarily his biggest priority. Lula himself said during the campaign that he's very interested in delivering for Brazilians, especially lower income ones. And we saw that during the campaign. He unveiled some very expensive social programs. So that's why investors are concerned, because they don't know to what extent he's going to hit the brakes on spending once his fourth mandate starts.

5:21 Bloomberg's Augusto Sarraiva there. Lula's main rival, Flavio Bolsonaro, who had been the market's preferred choice, formally conceded defeat and abandoned plans to challenge the result. France's bond risk has posted its biggest drop since 2020. The extra yield that investors demand to hold 10-year French bonds over safer German debt fell by 14 basis points yesterday. France remains unable, though, to contain its swelling debt burden and plans to make € 4 billion available for high school renovations in response to nationwide protests. Despite that, Rick Reader, Global Fix Income CIO at BlackRock, says that holding sovereign debt is not worthwhile.

6:07 Quite frankly, I think there's better value than taking government risk in a bunch of opportunities we take advantage of today. So we've, you know, is it overdone? Boy, it got pretty aggressively sold over the last few weeks. My sense is it's going to be volatile from here. And, you know, we'll be tactical in it, but it's not going to be a big part.

6:27 Of the portfolio.

6:29 BlackRock's Rick Reader speaking there. The market shift for France comes after rating agency Moody surprised many by keeping France's rating at AA3 with a negative outlook, avoiding a downgrade despite the challenging political and social environment. The firm said that its baseline assumption is that a deficit-reducing budget for 2027 will eventually be adopted. The UK's Chancellor John Healey is poised to raise the UK's national living wage by about 4% in tomorrow's budget. However, the move will not close the pay gap with younger workers amid growing concern that hiring costs are driving youth unemployment. PIMCO Senior UK Advisor Rupert Harrison says that alongside measures to give workers

7:15 a breathing space, the government also wants to appeal to business.

7:20 When people are perceiving the direction of UK policy, there's been a lot of noise about taxes going up, regulating the labour market and so on. And I think they do realise that that is having an impact on investment and location decisions and they want to try and change the narrative. What has been announced so far is relatively small.

7:38 We had some headlines over the weekend about deregulation, but when you dig into them, they're really quite small beer, sort of classic kind of pre-budget stuff.

7:45 That was PIMCO Senior UK Advisor Rupert Harrison speaking to us right here on Bloomberg Radio. Andy Burnham has made the cost of living his focus since becoming Prime Minister in July. On Monday, the Treasury announced import tariffs will be removed on household staples as part of a package of, quote, everyday fixes. So, that rounds off our top stories for you this morning ahead of the budget, of course, in the UK, which is tomorrow. Global stocks extending gains this morning with the AI frenzy back front and center, the anthropic IPO, Broadcom and Meta funding rounds. The KOSPI has soared more than 3%. The Nikkei 225 is up almost 2% this morning, although US stocks 50 futures are down today for the European market open three-tenths low as Nasdaq futures

8:34 also dropping two-tenths of 1%. Brent crude trades below $ 115 a barrel. There are talks with senior officials from several countries going to Tehran.

8:43 U.S.

8:44 Treasuries have been rallying on something of a flight to safety. If you look at October, 10-year yields have slumped more than 30 basis points so far this month. They trade at 4.96% this morning. We also had out for the U.K., October BRC shop price inflation figures 2.1% year-on-year for October. Now, that is the most since 2024, if you're thinking about the inflation picture. Those are the markets. Now, in just a moment, we'll bring you reaction to Anthropic's pitch to investors as the company goes from private startup to giant publicly listed company. And we'll also dig into HSBC's results.

9:23 But there's something else that caught my attention. Will London and other places start to look a bit more like the white and shimmering villages of Greece and Spain? Bloomberg Opinion's Lara Williams has been writing about the excitement over a bucket of white paint. She's been visiting a startup called Emissive, one of the capital startups working on climate change and how to cool buildings. She talks very interestingly about the recent innovations in materials science that are going to make what are making white paints reflective and cooling properties even stronger. So, Emissive. was founded last year by two Imperial College students. Their paint costs about £ 6 per square metre. That's about $ 8. It's slightly more expensive than

10:11 sort of commercial solar reflective paint. In practice, it means that the sun's rays bounce off the painted surface. They've made their first sale to a London council. They're focused on small containerized units, you know, things that, you know, you'll be familiar with if you're in the UK. These temporary classrooms, temporary offices, which they say, you know, overheat so easily but could be repainted cheaply. One of the things they're working on there, though, is what happens in the winter? What happens when it gets cold? Does it make it harder to keep buildings warm? And also the aesthetics, which actually is just as big as a battle, convincing a country with kind of brown roofs to paint them

10:52 all white. Anyway, it's a great story. Very interesting on climate change and what happens next summer. We're all going to be boiling again. I recommend Laura Williams's piece. We'll put a link to it in our podcast show notes. Now, Anthropic is poised to be the first major U.S. company focused solely on building AI software to go public, making this a landmark moment for the AI industry. In a letter to potential shareholders, Anthropic's co-founder said that AI... and Anthropic represents one of the greatest economic opportunities in history.

11:25 There you go. That's a way to sell it. But the process has also revealed both the extraordinary revenue growth of the Claude Maker, along with massive and growing compute costs and significant uncertainty about long-term demand. Joining us now is Bloomberg's markets reporter, Anthony Stephens, to think about all of this. Anthony, good to speak to you. So, we're thinking a bit more about actually what this company is going to be worth, $ 1. 5 to $ 2 trillion. What did we learn from Anthropic's stock market flotation documents about this business?

11:58 First of all, I'd like to enjoy the stock code after my nickname. Going back to the valuation, we don't really learn that much about valuation just yet because the valuation has been swinging around between one and a half to two trillion. Polymarket now is around 60% to hit two trillion by the time it lifts. So that one and a half is the kind of consensus that we are settling on. On the back of the revenue number, the growing so fast to 16 billion, you know, you guys talked about, you know, 13x basically being the kind of number. You also saw a ballooning in the compute cost, but that as a percentage of revenue has started to come down sharply. So that's going to support the valuation a little bit. The fact that they are getting more

12:42 margin from each dollar of compute that they're spending. They've also addressed kind of the concentration risk around the client base that people are worried about, that they need to expand their enterprise client base, and they've done so to some degree. So there are a lot of clients now paying enterprise-level money to Anthropiq. What's also interesting on the compute side is they have a lot of obligations to SpaceX.

13:07 So this kind of validates the SpaceX thesis as well as an aside. And lastly, you know, we are aiming for a float that's in the bracket of SpaceX and the language is in and around that number. But we won't get any details around that. Lastly, for Asia, what's interesting is they seem to be marketing the IPO to the broad Western world, plus Japan, plus Australia.

13:29 There isn't any South Korea in there.

13:31 Remember, for SpaceX, South Korea was quite controversial as locals did not get much allocation. So they've decided to avoid that drama altogether. So quite an interesting prospectus. We do find out how fast it's growing. We do find out that the business is improving. But the bears have plenty of stuff to hang their hats on as well.

13:50 Yeah, I mean, there was a lot in it, wasn't there? And it has taken a bit of time for people to digest that. I think also something to pick out is that going forwards, the seven co-founders are not only going to be hugely wealthy as a result of this IPO, but they are also going to remain very much in charge.

14:09 Yeah, it continues the Silicon Valley trend of, you know, these complicated ownership structures that basically result net-net in common shareholders not having much say in the companies running.

14:20 And that's worked out for the most part.

14:22 It's gone back as far as Google, you know, where the average shareholders had little or no say in how the companies run and instead enjoys the stock returns.

14:30 In this case, it's really quite extraordinary.

14:33 The seven holders, they own a company that holds one share of an F-class share that has 50% of the voting right. What's even more extraordinary is they hang on to that one share unless they sell more than 98% of their normal A shares. So it will take a lot, and I mean almost all, dilution of their shareholdings for them to lose control of this company.

14:57 So it's really quite remarkable.

14:59 You are placing your faith entirely in the leadership team all the way up, and that's the call that the shareholders will have to make.

15:08 There was also, of course, the warning about catastrophic or existential risks to humanity from AI, as well as the fact that Anthropic has set up a new public benefit fund. Why these warnings? Why the funds? And what do we think about it?

15:28 Ninety pages of warnings. In fairness, the Amadeus, both of them, have been warning about AI risk for a very long time. It's been catalyzed as these models achieve the kind of intelligence that, you know, frankly scares the anthropic researchers, apparently. And they've been very vocal about it. They've wanted to slow the frontier. Now, that It proceeds as both a marketing ploy and a risk factor element. There is a context in there that they say that it's impossible to ensure risk. If there is a catastrophic failure, there's a lot of warnings around risk to society in the most wide sense.

16:09 And also we are seeing some of that.

16:11 In the day-to-day cybersecurity, for example, Japan is struggling under the weight of a massive cyber hack as we speak. On the other side of it, you have the foundation.

16:20 The foundation is.

16:21 Actually just a touch smaller than the combined ownership of the founders group. And the foundation will be seeded by the IPO and will be looking to mitigate some of these social ills, which are broadly defined at the moment. But for the most part, it looks like it's going to talk about AI cybersecurity, which seems to be front of mind, and then later down the line around the societal costs around work and employment. And I think in terms of the social mission, what Anthropic wants to do is position itself at the forefront of this issue with regulators, because it is very, very high conviction that these issues will continue to be a big part of the AI story going forward.

17:01 Yeah.

17:02 It's a huge, huge developing story, Anthropix IPO. And it is expected to raise more money than any business in history. So, there's a lot to say about it. Anthony, thank you very much for being with us. That is Bloomberg's markets reporter, Anthony Stephens, both about the huge potential, but of course, about the risks that we have known about for some time when it comes to that business also. Stay with us.

17:26 More from Bloomberg Daybreak Europe coming up after this. Now, let's get to the earnings from HSBC, which has announced third quarter pre-tax profit of $ 9. 63 billion. It's up 32% year-on-year, but misanalyst estimates, along with a billion-dollar share buyback. Joining us now is Bloomberg Intelligence's Phil Richards, who leads our team covering banks in the global capital markets. Shares are down this morning more than 5% in Hong Kong trading for HSBC. Phil, why were these results from HSBC quite mixed?

18:04 Yeah, Mix is the fair reason. The share price action is fairly strong. Basically, what the market is concerned about is high ball has been rising quite nicely since about April this year. We were expecting a boost in net interest income on the revenue line and also maybe an upgrade to their 2026 guidance. But neither of those has happened.

18:21 It was actually higher than it was in the second quarter, but not as much as expected. And all guidance and targets are kept flat, as it were. And that's what's disappointed people. Also, the capital ratio has come in slightly lower than people expected. But I'll say it is mixed overall. The buyback, as you mentioned, is positive. They paused it for a few quarters when they did the Hang Seng.

18:41 They started again in the second quarter and they've done another billion this quarter. That's positive. Wealth flows coming through are very strong. They're up in Asia. Net new money of $ 38 billion versus $ 22 in the second quarter. And cost of risk has also gone down. So, any Hong Kong commercial real estate concerns are eased.

18:59 Okay, that's interesting. Yeah, high ball, of course, the benchmark interest rate that banks in Hong Kong lend in Hong Kong dollars. In terms of what this means for the CEO, George L. Hedry, and expectations going forward, given his efforts to simplify and to sort of streamline the business? Yeah, there's no change.

19:19 Exactly. They have 2026 to 2028 targets of 5% revenue growth, return on tangible equity or profitability of 17%, paying out 50% of earnings as dividends. And there's no reason to expect any of that to change. The business continues. They're still taking out costs. They raised their target cost takeouts up to $ 2 billion. They've done $ 1. 9 billion of that so far. So, those are coming through. A bit of a concern there.

19:43 They made a comment that performance-related pay might be actually slightly higher in the fourth quarter, driven by quite strong trading numbers. So, that's a bit of a concern on the cost line. But overall, it's continuing, it's simplifying, focusing on the core four divisions and then cutting costs where they can.

20:00 Yeah, Phil, that might be a concern for the business. Might get a bit of a cheer maybe from a few listeners out there. You never know. In terms of how HSBC compares to other bank earnings, put it into perspective for us, would you? Yeah, we're early doors, certainly in Europe.

20:14 And so, the U.S. have largely reported now and they're very strong, particularly on the equity trading side. So, Europe's really just kicked off. We had a few of the Nordic banks and actually earnings have been very weak so far. And most of the shares for the banks have been down on reporting day. But so, it's very early days.

20:29 We have a bumper day tomorrow when most of the European investment banks report. So, we'll see what comes through from there. But overall, yeah, so a bit of a slow start from HSBC overall.

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