A Big Year for M&A, but Only 2% of Companies Are Actually Using AI
Gene Sykes, Goldman Sachs' co-head of M&A, says this is the biggest M&A year in history, driven by AI infrastructure; but only 2% of companies are seeing AI lift EPS in their reported earnings.
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The Olympics is an order of magnitude bigger than the World Cup
Gene Sykes offers the comparison: the World Cup was held across Mexico, the United States and Canada, with 104 matches, 16 stadiums and roughly 600 athletes. The Los Angeles Olympics and Paralympics together will have 17,000 athletes and about 900 medal events, and the two events combined will sell 15 million tickets, where the World Cup sold only 6.5 million. His claim is that the Olympics covers roughly 90% of the sports world you can imagine. That scale difference puts the organizational complexity on an entirely different level.
— Gene SykesLos Angeles doesn't have to build a single venue
On the so-called "first privately funded Olympics," Sykes' explanation is: no government money is going into running the Games, and the federal government only plays a role in security and related logistics, because 206 countries will be sending teams. What makes this possible is that Southern California already has the best sports infrastructure in the world — the venues and arenas are all there, nothing needs to be built. The athletes' village doesn't need to be built either: everyone stays in UCLA dorms — UCLA normally houses more students than the athletes needed during the Olympics. This is the key to why these Games are easier to plan and execute.
— Gene SykesMedia rights were sold out a decade in advance
Part of the Olympics' money is "pre-baked": the International Olympic Committee sells the media rights for all Olympics many years ahead, NBC is the U.S. rights holder, and the contract already runs to 2036 — by which point nobody even knows where the Olympics will be held. The U.S. rights fee is $1.5 billion per Games or more. The IOC also sells sponsorships to companies like Coca-Cola, Visa and Samsung. Then the domestic organizing committee sells another round, and for Los Angeles that went to Starbucks, Uber and Google. Sykes says corporate interest is enormous, because everyone believes this will be the biggest event in world history.
— Gene SykesThis is the biggest M&A year in history
Sykes says this is the biggest M&A year in world history, and by a wide margin. The previous peak was 2021, and that was inflated by COVID. Over the past few years, 40% of the M&A market was sales of private-equity-held companies; this year that share has fallen to 30%, because more substantive demand has appeared — around AI's impact on the economy, every industry is going through the same thing, natural resources and power generation alike, because they are building AI infrastructure. There's a huge boom in semiconductor technology and semiconductor M&A, because everyone wants to own proprietary semiconductor technology.
— Gene Sykes80% of startups end by being acquired
Sykes' judgment: every startup, even an AI company, has to think clearly about what its endgame is, and 80% of startups end by selling themselves to someone else. This is both the calculation in the founder's head and the source of economic return for the VCs behind them — you have to figure out how what you build helps another piece of the puzzle. The remaining 20% can become durably independent companies, either because they have something completely differentiated or because they simply can't find a buyer. He cites SpaceX as an example: in a market that already had plenty of incumbents, it did something different, and those incumbents were constrained by the regulatory environment, so SpaceX chose to challenge it.
— Gene SykesAnthropic and OpenAI are too big for anyone to buy
Sykes says Anthropic and OpenAI will obviously become independent companies, because they are almost too big for anyone to buy. That's the other side: if a company gets too big, it means it has succeeded very well, but you have to have enough confidence that they own a durable platform. Tracey follows up: will we one day read in the risk factors of an S-1, "we believe there is a non-trivial probability that our technology will wipe out all of humanity"? Sykes says lawyers would probably say you need to protect yourself and make sure disclosure is complete, so that kind of big, crazy, scary thing will definitely show up in S-1 language.
— Gene SykesThis infrastructure build is funded from free cash flow
On the analogy between AI infrastructure and the TMT bubble, Sykes says there's no way to know how big the market will be or whether it will be overbuilt relative to real demand five or six years out — the answer is "we just don't know." But he points to one key difference: in the first TMT internet buildout of 2000 and 2001, the money came mainly from VCs; this buildout is funded by the world's most successful large tech platforms, which until this year had hundreds of billions of dollars in free cash flow. That's an astonishing reversal.
— Gene SykesOnly 2% are actually seeing AI lift EPS
Joe puts forward a theory: enterprise AI adoption is basically zero. Sykes says they just ran the analysis, and it's 2% — meaning the companies that say in their earnings reports that their use of AI has had a positive impact on EPS, currently only 2%. He distinguishes several levels: maybe 20% to 30% of companies have implemented a strategy of using AI across their businesses; but employees each having a ChatGPT or Claude subscription and using it as "glorified search" doesn't count as meaningful adoption. He uses Goldman itself as an example: there are a lot of prompts using AI to get things done, and the youngest employees are "AI natives," doing things a year ago you couldn't have imagined.
— Gene SykesAI won't replace the relationship side of M&A
Sykes says M&A is a business of trusted relationships and good advice, and clients are looking for people who understand the world and can synthesize a lot of independent variables. Synthesizing independent variables is a talent, and people who are good at it get stronger with AI: they reach conclusions faster and are more imaginative — after getting the first data point they don't just believe it, they ask the reverse question. His wording is careful: it's not that people get smarter, it's that if they can get more and better information, they can have more confidence and better judgment. He thinks this will reshape how everyone in the industry gives advice, and how clients understand what to expect.
— Gene SykesAI will make old film libraries more valuable
On whether content libraries and rights libraries become more or less valuable, Sykes says over the past decade they have consistently become more valuable, partly because some people want to securitize the cash flows. He personally thinks familiarity, things that have been validated by time and widely appreciated, are very valuable, so they will keep getting more valuable. And AI is very likely to make existing content libraries more valuable, because it will find more uses for existing content. He imagines AI creating an environment where people are reached in "pulses" by different types of media content in ways they never imagined, and where AI is smart enough to make that reaching actually appealing to people, rather than bombarding them into annoyance.
— Gene SykesIn their own words · checked verbatim
in the Olympic and Paralympic Games, when you put the two together, we'll have 17,000 athletes. We'll have something like 900 separate events, medal events. It's enormous. We'll sell 15 million tickets between the Olympic and the Paralympic Games in Los Angeles.
Gene Sykes4:07
NBC is the media rights holder for the United States. They've got a deal that now goes through 2036. We don't even know where the games are going to be in 2036.
Gene Sykes11:17
this is the biggest M & A year in the history of the world. Really? Biggest year by far.
Gene Sykes14:19
every startup, even in AI, has to think to themselves, what's the end game? And for 80% of the startups, the end game is selling themselves to somebody else.
Gene Sykes16:20
I think we'll see, obviously, Anthropic and OpenAI be independent companies. They're almost too big for anybody to buy.
Gene Sykes17:23
Now the investors in this build out are the most successful big technology platforms anywhere in the world who had hundreds of billions of dollars of free cash flow until this year.
Gene Sykes19:23
So 2% are the companies who in their earnings reports have said, we see an impact on EPS, a positive impact of our use of AI, 2% so far.
Gene Sykes20:25
I think AI is likely to make existing contents in catalogs more valuable because it will find more uses for existing content.
Gene Sykes25:29
Figures
| World Cup matches | 104 | 4:07 |
| World Cup host stadiums | 16 | 4:07 |
| Total athletes at the Olympics and Paralympics | 17,000 | 4:07 |
| Medal events at the Olympics and Paralympics | about 900 | 4:07 |
| Tickets sold for the Los Angeles Olympics and Paralympics | 15 million | 4:07 |
| World Cup tickets sold | 6.5 million | 4:07 |
| Countries sending teams to the Olympics | 206 | 5:07 |
| Term of NBC's U.S. media rights contract | through 2036 | 11:17 |
| Share of companies saying AI has a positive impact on EPS in their earnings reports | 2% | 20:25 |
Glossary
- HOV lanes
- Lanes restricted to vehicles with multiple occupants; during the Olympics they will be converted into Olympic-only lanes.
- S-1
- The registration statement a U.S. company files for an IPO, which includes a risk factors section.
- TMT
- Short for Technology, Media and Telecom, referring to the M&A sector covering those three industries.
- EPS
- A company's net income divided by its shares outstanding, the core earnings metric in financial reports.
How to listen
Investors watching AI capex and the M&A cycle, founders doing enterprise AI deployment, and anyone who wants to understand the commercial structure of a mega-event.
The opening chit-chat about Huntington Beach and California livability, and the host's subscription and community plug at the end.