As April showers brought May flowers, they also brought a whole new wave of AI-centric M&A.
One way to look at the wave of recent AI deals is that it’s a self-reinforcing cycle, with deals begetting more deals.
“The big companies see the wave and say ‘Hey, we better innovate or we’re going to be antiquated,’” said Rob Rueckert, partner at Sorenson Capital. “They’re hungry not to be dinosaurs, so I think there’s a lot more acquisitions happening now.”
He notes that acquisitions have always been the main outcome for software companies: “It’s always been 80% to 90% of outcomes. Just right now, since there have been few IPOs, it’s almost 100% the case.”
In some ways, there’s no indication that AI’s backers are slowing down. In Q1 2025, 71.1% of total value in U.S. startup funding was funneled into AI and machine learning companies, according to PitchBook. (Granted, much of that surging deal value can be attributed towards capital flowing in the direction of the big guns—including OpenAI, Anthropic, and xAI.)
On the other hand, it’s hard not to see the signs of consolidation in all the recent acquisition activity.
“Looking at this as more of a market framework, I’d characterize this as probably being at a mid-stage of the AI boom as opposed to the end,” said Otherwise Fund managing director Terrence Rohan.
“I think an end game would probably look a little bit different, but this definitely doesn’t happen at the beginning. There’s definitely a sense of ‘Oh, we can still build.’ But maybe we’re at some mid-stage of maturity where people say ‘Hey, we could go [get acquired] for $10 billion, but we’ve got a billion in hand.’ That’s a real boardroom discussion.”
AI right now seems to be caught between its past and future—a dynamic that’s playing out in deals and venture capital at-large. After a jetstream of capital propelled startups in 2021 and 2022, business conditions have changed. And some startups are feeling the pressure.
“[Over the last few years] companies learned they couldn’t burn money at-all-costs,” Rueckert told Fortune. “So, they got efficient but now that growth has slowed, there’s no pathway for them to go public…I think there are a lot of companies right now looking to find a home, and I mean a lot of them.”
The good news, as the past month’s deals demonstrate, is that large companies have proven willing to roll out the red carpet and bring some of these AI startups in-house. For large companies looking to bolster valuations and shore up their position in the private markets, and for those making it work in the public markets, there’s incentive to invest in innovation (for which acquihires are one path).
But as happens in any boom, when the music stops there won’t be enough chairs for everyone. “We’re going to see this collision between companies that need to find a home and not enough people willing to buy them,” Rueckert says. “So you’re going to have companies with nowhere to go, and who have to shut their doors.”
Clearly we’re not there yet. But as one big deal check after another is signed, it’s never too early to think about where, and when, this ends.
Have a great Memorial Day and see you Tuesday,
