As generative artificial intelligence captures the attention of investors and the general public, it’s primed to drive a mergers-and-acquisitions supercycle, according to the latest episode of Goldman Sachs Exchanges.

A number of prerequisites need to happen first, according to a new paper, Navigating the AI Era, from Goldman Sachs Global Banking & Markets. Companies’ adoption of generative AI solutions has to move farther from proof-of-concept to production. This will be enabled in part by greater clarity on the future of foundation models, which are trained on enormous data sets and can be used for a wide range of purposes. Legal and regulatory frameworks also need to mature.

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There has already been significant strategic activity this year as large incumbent technology companies have invested in or acquired generative AI startups, including some companies acquired for the sake of their talent.

Commenting on this, Goldman Sachs’ managing director, Matt Lucas, said: “For most companies, it’s so uncertain what the meaning of AI is going to be for their industry that there’s not a lot of M&A to do yet.”

Goldman Sachs’ partner, Jung Min, added: “There are pockets of dealmaking in areas such as legal research and customer support that are largely text-based and work well with chatbot interfaces, Lucas adds. Another area that’s seeing M&A activity is among technology-enabling companies that are closest to the core of the gen AI phenomenon.

“And in the relatively small number of deals that have happened, public investors are commonly bidding up the buyer’s stock price more than the price they paid for the target company.”

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