AI Incumbents Bet on M&A — Will It Be Enough?
At the beginning of 2023, investors widely believed incumbents would dominate the generative AI wave, highlighting their substantial distribution reach and data advantages as significant barriers for startups. However, reality has painted a different picture. Most AI features released by incumbents have been incremental rather than transformative. Despite heightened urgency and accelerated timelines, large organizations still grapple with internal friction and significant gaps in technical talent, limiting their pace of innovation.
As incumbents grapple with internal execution, acquisitions have become a key strategy for quickly bridging capability gaps. For founders, closely monitoring these dynamics is crucial, as today's active acquirers may present attractive exit opportunities for their startups. However, it's still uncertain which incumbents will successfully leverage acquisitions—and which will fall short. For those that do struggle, it creates further greenfield opportunities for founders aiming to build the next generation of category leaders.
We reviewed acquisition trends across AI application and infrastructure companies since 2018. Deal activity peaked in 2020 with 50 transactions. If the current trend continues, 2025 could close with 42—making it one of the most active years since the peak.
The top five acquirers are Microsoft (50), IBM (48), Apple (33), Salesforce (31), and Palo Alto Networks (21).
In theory, companies with extensive acquisition experience should have a clear advantage—they know what works, what doesn’t, and presumably have built up the capability to integrate teams and technologies effectively. Yet, in practice, experience alone doesn't guarantee success. Many acquisitions still fall short, as internal operators frequently highlight issues such as critical talent departing, products failing to integrate seamlessly, and promising technologies becoming lost within larger organizations.
For some players, M&A is becoming existential. Salesforce is a clear example: facing slower growth and real disruption risk, their recent push—including the Informatica acquisition—looks like a direct response.
M&A won’t solve every incumbent problem—but in the right scenario, it can prove very accretive. MongoDB’s acquisition of Voyage is one such case. It strengthens MongoDB search offering, and makes it a strong player in the vector search space, bringing capabilities that would have been hard to build in-house.
It’ll be worth watching how this wave of acquisitions plays out. For founders, one piece of tactical advice: start building relationships with these buyers early. In a market where incumbents feel pressure to act, timelines can compress and valuations can surprise on the upside.
Index Summary:
The AI Index tracks the performance of leading public companies prioritizing generative AI initiatives.
In May, the Index returned 9%. For the prior 12 months, the Index has returned 5% to its current level of 135% since January of 2023.
Out of the 32 active companies in the Index, 25 rose in May, while 7 declined. Gainers include Astera Labs (+31%), and Snowflake(+24%). Significant decliners include Entegris (-13%), and Apple (-6%).
The median NTM revenue multiple was 6.5x, with a median quarterly YoY revenue growth rate of 19%.
We thank Aiera, an AI-powered equity research platform, for accelerating our data and insight extraction process.
Note: These insights are focused on AI developments and priorities as discussed in management publications, earnings calls, and other company announcements.
