Software valuations are historically high, and AI companies are reaping outsized benefits. Valuations are bolstered by strong public markets, disruptive technology trends, and record cash levels in the hands of buyers.

Dealmaking activity in this space has grown immensely over the past decade, and that boom has really picked up steam in recent years. From 2020 to 2022, the volume of M&A transactions more than doubled. In the following years, the AI market continued to post steady growth. The trend became even more pronounced in 2025, as dealmaking activity experienced another significant surge. Growth in 2025 doubled relative to the previous year, resulting in a remarkable 44% increase in deal volume.

This upward momentum continued into 2026, with dealmaking activity expanding by 38% in Q1 compared to the same period last year. PE companies accounted for the buyer in about 18% of all transactions in the first quarter of 2026.

Buyers preferred to keep their M&A strategies private as only 15% of transactions disclosed their financial terms, keeping to historical trends. After the record numbers of 2025, total disclosed M&A deal value reached $18.6 billion in Q1 2026. There were 4 megadeals reported with the largest one reaching over the $5 billion threshold and median disclosed M&A deal size was $31 million.

Over the past few years, VC funding in AI companies has been volatile, and the recent surge in capital does not necessarily reduce pressure on founders to find strategic outcomes. While 2025 saw AI VC funding jump to $211 billion and deal volume rise, that influx also raised expectations around growth, valuation, and timing of returns. In 2026, first-quarter investment reached $229B across 3,121 deals, but such pace may prove difficult to sustain and could intensify the gap between capital raised and realizable exit value. The median VC investment size in AI firms was $5 million, well below M&A levels.

From an M&A perspective, the funding surge may ultimately reinforce the importance of buyer appetite rather than diminish it. As more capital flows into AI, companies face higher performance thresholds, longer holding periods, and greater pressure to demonstrate durable commercial traction. In this environment, strategic and private equity buyers can offer a clearer path to scale, liquidity, and execution through M&A strategies than continued dependence on venture funding alone.

Thoma Bravo and OpenAI dominated AI M&A activity in Q1 2026, each closing 6 deals — signaling aggressive consolidation from both a PE powerhouse and a leading AI company. Other notable buyers included strategics such as San Francisco-based agentic AI CRM provider Salesforce, Californian data analytics platform Databricks, Israeli cybersecurity company Check Point Software Technologies, and Belgium-based digital services specialist team.blue, as well as 2 private equity companies – Blackstone and HgCapital.