Tech promises ‘multi-year’ M&A boom, says Morgan Stanley’s Cheng

(Bloomberg/Ryan Gould) — Technology dealmakers are just beginning a supercharged period of mergers and acquisitions activity after racking up a record run this year, according to a senior Morgan Stanley banker.

“We’re on the second or third floor of what I think is a multi-year, rip-roaring upswing in tech M&A,” said Wally Cheng, head of global technology M&A at Morgan Stanley. “Every part of tech dealmaking is at an eight or nine out of 10.”

The value of all transactions in the tech sector has hit $1 trillion for the first time ever this year, data compiled by Bloomberg show. That came on the back of some huge bets by companies and investors on artificial intelligence and the infrastructure that powers it.

Sam Altman’s OpenAI has secured major investments from the likes of SoftBank Group Corp. and Nvidia Corp. to support the build-out of new data centers, while BlackRock Inc.’s Global Infrastructure Partners led a consortium that struck a $40 billion deal for Aligned Data Centers.

Elsewhere in the sector, Google parent Alphabet Inc. agreed a $32 billion acquisition of cybersecurity startup Wiz as a way to provide customers with new safeguards in the AI era, and Palo Alto Networks Inc. announced a $25 billion purchase of CyberArk Software.

“What’s supercharging the market is the return of strategics to the negotiating table,” said Cheng. “We’re seeing very large, transformational, all-stock deals between public-company frenemies, adjacencies or competitors.”

To be sure, AI remains largely unproven as a profit-making model and there are concerns among some market participants of a bubble forming around the technology — one that, if it bursts, could have a broader impact on stock markets and overall M&A activity.

“AI is undeniably transformative but, like any emerging technology, hype can run ahead of reality. Whether this is a bubble depends on how quickly real-world applications catch up to valuations,” Cheng said. “But one thing is clear, AI will fuel growth and M&A for years to come.”

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