By Liz Dunshee
How AI is changing market dynamics
With AI transforming capital-raising dynamics and M&A strategies, our clients are navigating a dynamic moment. Yesterday, Cooley Partners Jamie Leigh and Dave Peinsipp were joined by Nicole Irvin and Todd Ebe of Goldman Sachs to discuss how rapidly evolving risks and opportunities are shaping corporate strategy and market activity.
If you missed the Cooley Market Talks webcast, you can watch the full replay here. Here are a few key takeaways:
The IPO bar is higher, but achievable
Public capital-raising opportunities continue to exist for well-positioned companies, but there are a couple of complicating factors:
- Geopolitical events and AI replatforming have created pockets of volatility that are especially challenging for the tech sector. Day-to-day market swings have intensified decision-making for late-stage companies trying to enter the market.
- Of the 27 IPOs in the technology, media and telecom sector from 2025 to 2026, only eight are trading above offer price. As a result, many investors currently have a lower risk appetite and have raised the performance bar for new issues.
The good news is that a stretch of stable trading could release pent-up deals – especially for companies with strong financial profiles and a good story. IPO readiness remains important, because when the dominoes start falling and IPOs perform, activity tends to accelerate rapidly. Being caught unprepared when a window opens is a costly mistake.
IPO readiness now has an AI overlay
While the baseline IPO readiness playbook hasn’t changed, directors, executives and in-house teams are adapting to a new AI overlay that requires staying very attuned to the company’s technology narrative. The days of the boilerplate “AI slide” are over. Now, investors want substance and a roadmap.
From diligence to investor meetings to the Form S-1, boards and management teams preparing for an IPO must be able to explain business details, strategies and prospects in a credible and compelling way. Feedback from testing-the-waters meetings can help refine messaging. Investors are asking:
- How central is AI to the company’s business and competitive strategy?
- What is the company’s real differentiation, and how does it hold up against competitors making similar claims?
- How does AI affect the company’s financial profile? Is it creating leverage in the margin structure or just adding to top-line growth? Is the growth sustainable?
- Where does the company fit within the AI ecosystem? Is it AI-adjacent or truly an “AI” company? Is it multi-track or purpose-built to fill a specific market gap?
- What AI capabilities are native to the product versus licensed or integrated from third parties?
- How does the company preserve proprietary data and technology advantages?
Where AI development is still nascent and proof points have not yet appeared in the financials, there are genuine strategic decisions to be made:
- Does the company get the best leverage from going public now, or by allowing those results to mature before beginning to market?
- What tools, teams and innovations should be prioritized?
- Should the company pursue acquisitions and/or joint ventures?
- Should the company consider where it would fit within a buyer’s stack, and does that affect the go-forward strategy?
- What are the liquidity and valuation expectations of the investor base?
These are questions for the board and management to work through with support from counsel and bankers. Since the company’s investors may not have uniform views and expectations, and the management team may have yet another perspective, getting strategic alignment is key.
AI repositioning is turbocharging M&A
On the transaction side, the numbers tell a striking story. Companies across the tech sector – and frankly, the entire economy – are recognizing AI’s strategic impact and the need to reposition their business as the transformation happens. Tech M&A grew 105% in 2025, more than doubling year over year, driven largely by strategics looking to capture new AI-related profit opportunities. January and February 2026 saw M&A activity up 24% year over year before a period of reassessment, particularly in software.
Companies across the board are deploying capital through CapEx, R&D and M&A to unlock new profit. The winners will be defined by how hard they lean into their existing strengths, how they are able to reposition themselves and how well they execute. We are seeing echoes of the cloud software as a service (SaaS) era 16 years ago, which created a huge wave of consolidation and a decade of sustained M&A activity, with strategics playing a large role.
Critically, M&A buyers are asking the same questions as IPO investors, and targets must be prepared to demonstrate defensible, underlying AI assets that are strategic to the buyer. However, an “AI asset” does not simply mean an AI model. It can encompass data, customers, distribution and the entire ecosystem powering a new tech stack.
For companies considering a dual-track process, the M&A path can inform and strengthen the IPO process (and vice versa). It can also offer benefits that IPOs cannot currently guarantee, such as:
- More certainty in both timing and valuation, particularly in a dynamic market where the IPO path can stretch 18 or more months into an uncertain future.
- Potentially greater value within a strategic acquirer’s platform than as a standalone public company trying to reach scale.
What to do now
Every major tech replatforming has produced both new market leaders and incumbents that adapted strategically and continued to grow. We expect a similar dynamic to emerge from AI. The uncertainty is real, but experienced advisors can help companies pressure-test their strategic options and AI narrative, avoid time-consuming pitfalls and navigate evolving market conditions and changing deal dynamics. Companies with strong fundamentals and a cohesive, well-communicated AI strategy will be best positioned to move when opportunities arise.
If you want to level-up your readiness, please reach out to the Cooley capital markets team.
