Artificial intelligence is driving one of the strongest periods for large-cap technology dealmaking in years. Yet it is also creating uncertainty around valuations, extending diligence processes, and suppressing mid-market activity.

North American technology, media, and telecommunications M&A is increasingly bifurcated between AI beneficiaries and businesses whose long-term competitive positions remain unclear. Strategic buyers armed with cash, stock currency, and urgency around AI adoption continue to pursue acquisitions aggressively, while sponsors remain constrained by financing costs, valuation gaps, and questions over how AI will reshape software business models.

The result is a market producing headline-grabbing deal volume while masking persistent weakness beneath the surface.

“The strategic importance of AI is forcing companies to shift resources to new ways of doing things,” said Brian Covotta, partner at O’Melveny. Faced with rapidly changing technology, many corporates are increasingly choosing to buy rather than build capabilities internally, particularly in AI-related areas such as semiconductors, cloud platforms, data centers, and cybersecurity, he said.

The urgency stems from concern over what happens to companies that fail to adapt. Daryl Lansdale, vice chair at Norton Rose Fulbright, said buyers increasingly view acquisitions through the lens of future competitiveness.

Companies are asking whether they should buy assets now or risk being left behind as AI reshapes industries. At the same time, some acquirers remain hesitant because they cannot confidently predict where target businesses will stand two years from now.

That tension is shaping nearly every corner of the TMT market.

Sponsor slump

One of the clearest trends of 1H26 was the dominance of strategic acquirers over private equity sponsors.

Strategic deals accounted for 90% of the total deal volume in 1H26, up from 58% in 1H25, according to Mergermarket data.

Sponsors face the challenge of securing acquisition financing in an environment where lenders remain cautious about both technology valuations and AI disruption risks, Lansdale said. Lenders must assess whether buyers are overpaying for targets and whether rapid shifts in technology could undermine an investment thesis.

Sponsor activity also remains constrained by ongoing uncertainty around AI risk and software valuations. Many private equity firms are still trying to determine how software businesses should be valued in a market reshaped by AI, particularly as they manage portfolio companies acquired at peak-cycle valuations, said Ian O’Neal, a partner in Solomon Partners’ technology practice.

By contrast, strategic buyers frequently possess alternative sources of capital like their stock or existing credit facilities, allowing them to pursue acquisitions without the same financing burden.

Strategic buyers also often value technology assets more highly because acquisitions serve broader strategic objectives rather than purely financial returns, Covotta said. While strategics may justify elevated valuations through operational synergies or long-term positioning, sponsors have less flexibility when underwriting returns, he said.

Valuation discrepancies continue to derail deals across sectors, Lansdale said, often forcing parties toward alternative structures such as earnouts, seller notes, preferred equity investments, or commercial partnerships.

Mega-deals mask mid-market weakness

A handful of large funding rounds dominated the market.

The top 10 deals of 1H26 accounted for 62% of the total deal volume for TMT in North America, according to Mergermarket data. The largest deal in the sector this year was OpenAI’s USD 122bn funding round led by Amazon, Nvidia, and SoftBank. Another notable deal was Anthropic’s USD 65bn Series H.

These headline numbers are masking potential weakness in the mid-market.

Excluding fundraising, 1H26 deal volume rose just 3% to USD 336.8bn across 1,389 deals. SpaceX’s pending USD 60bn purchase of Anysphere, maker of the AI coding tool Cursor, is the largest acquisition announced this year.

The “SaaSpocalypse” – triggered by Anthropic’s release of various Claude Cowork plug-ins in January that raised questions about the long-term efficacy of software businesses – has had a meaningful chilling effect on mid-market software M&A, according to O’Neal.

While investors remain interested in software assets, many are still struggling to determine which businesses are defensible in an AI-driven market and how those companies should be valued. The result has been a prolonged “re-rating” of software assets rather than a wholesale retreat from the sector, O’Neal said.

“Some companies will come out very big winners in an AI world. Some won’t come out of this at all,” he said. “We’re still in the early stages of sorting through that.”

Financing also remains more restrictive than during the 2021-2022 boom years, Lansdale said. Interest rates have not fallen as many participants expected, and buyers remain selective.

Buyers today feel comfortable walking away from opportunities, re-trading terms, or extending review periods, according to Lansdale.

That caution is especially visible in software.

Spencer Hurst, principal at Lovell Minnick Partners, said fintech dealflow “fell off a cliff” across the broad investment space throughout April as uncertainty surrounding AI’s impact caused some companies to delay bringing assets to market. Sellers now need a clear explanation of how AI will affect their businesses to attract buyer interest, he said.

Greater sponsor participation may help reignite mid-market activity, according to Covotta. No sponsors were involved in the top 10 acquisitions this year, per Mergermarket data.

Wayne Kawarabayashi, partner and chief operating officer at Union Square Advisors, expects tech M&A activity to increase in 2H26, particularly in the mid-market as companies gain confidence in how AI is affecting valuations and competitive positioning. He also expects more creative deal structures – including earnouts, asset deals and sponsor-led combinations – to help bridge valuation gaps and get transactions completed.

Eyes on infrastructure

While questions surrounding software durability continue to weigh on parts of the market, investors are showing growing enthusiasm for the infrastructure ecosystem underpinning AI adoption.

Dean Bell, head of US deal advisory and strategy at KPMG, said sponsors and strategics are increasingly looking beyond software applications toward the “picks-and-shovels” businesses enabling AI deployment.

He pointed to areas including cooling systems, construction services, tooling, and other businesses tied to data center development as beneficiaries of the enormous capital spending required to support AI workloads.

One notable technology deal highlighting this shift is KKR’s USD 4.8bn sale of CoolIT Systems to Ecolab in March. Canada-based CoolIT provides direct liquid cooling systems primarily for data centers, high-performance computing, AI, and enterprise server environments.

Many deals supporting data center growth will be classified as industrials, shifting capital away from mid-market TMT while still benefiting the broader technology sector and economy.

The challenge facing many enterprises is no longer whether AI will be adopted, but whether sufficient compute capacity, power resources and supporting infrastructure can be brought online to meet demand, O’Neal added.

AI to remain catalyst and constraint

Looking ahead, software M&A is likely to recover gradually, with activity concentrated among businesses that can demonstrate clear differentiation and sustainable growth.

Buyers continue to wrestle with questions surrounding competitive durability and defensibility in an AI-driven market, making underwriting decisions more difficult than in previous cycles, O’Neal said.

Meanwhile, sponsors are expected to become more active as they seek to deploy record levels of dry powder, particularly in infrastructure and larger technology transactions, Bell said.

AI remains both catalyst and constraint: fueling acquisitions in infrastructure, cybersecurity and strategically important technologies while forcing investors to reassess software valuations and competitive positioning.

Buyers continue spending aggressively where they see durable advantages, but they are demanding far greater proof before underwriting traditional software stories.

The TMT market’s defining characteristic is not a shortage of capital or interest in technology assets but a growing distinction between companies that investors believe are positioned to benefit from AI and those still trying to prove they can adapt.