Wedbush expects a wave of mergers and acquisitions in AI. Which companies are likely to strike a deal?

A well-known Wall Street techno-optimist - Wedbush analyst Dan Ives - believes that the AI industry is entering a new phase. According to him, major IT corporations are preparing for a wave of mergers and acquisitions to keep up in the race for leadership in artificial intelligence. He listed the stocks of companies that he believes could become deal targets in the upcoming consolidation cycle, and named two tech giants that are likely to be the most active as acquirers.

The AI industry is entering a new phase, Ives warned in a note available to OnInvest. "Over the next 5-10 years, we will see massive consolidation: more and more niche AI developments will be bought out and added to the growing portfolios of large tech companies and financial investors to capitalize on the explosive demand for AI in both the corporate and public sectors," Ives wrote.

The Wedbush analyst explained that companies in all industries are seeking to build AI technologies into their business processes, which accelerates corporate spending and turns AI into a key growth driver for cloud projects. For example, already more than 15% of cloud services include AI elements, he notes. However, small companies and startups are often unable to finance such expensive developments due to high costs for computing power and specialists. To keep up in the race, large companies will buy their share of the AI revolution through mergers and acquisitions (M&A) of smaller companies, Ives says.

The new wave of such deals, he said, will be fueled by the easing of regulatory hurdles, availability of capital and activity from potential buyers. "The regulatory environment under the new administration has become more lenient to deals, there are fewer hurdles now, and we believe the floodgates for technology M&A are effectively open. There are more opportunities for companies to add profitable assets with a simpler approval process," Ives added.

The Wedbush analyst has identified nine public companies that he believes could be targets for deals as part of the current wave of consolidation in the AI and cybersecurity market. According to Ives, many of them are undervalued compared to competitors and have strong technologies but face pressure on budgets or high development costs for AI projects. The list includes cybersecurity solutions provider Tenable Holdings; cloud security and compliance services developer Qualys; data protection solutions vendor Varonis Systems; cybersecurity company with an AI-focused portfolio SentinelOne; search and analytics developer Elastic; enterprise AI platform C3.ai; data and AI solutions provider Innodata; US federal agency technology provider Telos; and business platform developer ServiceNow, which is actively expanding its AI portfolio through M&A.

Ives believes that the most active buyers may be Apple and IBM, which are trying to catch up with the leaders in the AI race. According to the analyst, Apple, which is lagging behind in AI, will not be able to catch up with its competitors if it tries to develop Siri and other AI solutions only on its own. Apple has historically had few big acquisitions (the biggest being headphone maker Beats for $3 billion in 2014), but now it should "rip the Band-Aid off" and make a big deal, Ives said. Among Apple's possible takeover targets, he named Mistral and Perplexity, an AI search engine that could dramatically strengthen Apple's strategy and integrate with Siri.

IBM is already aggressively ramping up its dealmaking pace, Ives notes. For example, in the first half of 2025 alone, the company spent about $7.8 billion on acquisitions, of which $6.4 billion went to acquire developer HashiCorp - to strengthen its position in hybrid cloud and artificial intelligence. In addition, IBM acquired several niche AI companies, including Seek AI, Hakkoda and Datastax. The corporation has more than $15 billion in cash on its balance sheet, and Wedbush's analyst believes IBM will continue to "fuel growth" through new deals, adding 1-2 percentage points to revenue.

This article was AI-translated and verified by a human editor