More M&A amid AI buildouts, heightened costs: Fidelity International

M&A activity will continue to ramp up across most sectors as businesses look to capitalise on artificial intelligence (AI) buildouts while sustaining higher operational costs, a new survey found.

Fidelity International's annual Analyst Survey 2026, which collects information from an array of industries based on responses of 120 analysts, indicated M&A activity will continue to improve amid uncertainty.

"Expectations on mergers and acquisitions also speak to the glut of money circulating. About half of industrials analysts expect M&A deals to be more prevalent this year versus a third a year ago," the report said.

The IT sector is seemingly having a more prevalent momentum in the M&A trajectory, with 63% of IT sector analysts now expecting a rise of the activity in the coming months.

"Achieving meaningful productivity gains from AI in system integration may require a certain level of scale," Japanese sector analyst Noriyuki Takizawa said.

"Larger players may therefore seek consolidation to strengthen their AI implementation capabilities. Overall sector valuations are meaningfully cheaper than they were two to three months ago."

Practicum equity analyst and portfolio manager Terence Tsai supports the sentiment, stating that the scope of AI is "broadening".

"The buildout is expanding, not peaking," Tsai said.

"That development is bolstering spending by the customers of a wide range of businesses and points the way to streams of revenue that extend years into the future.

"Information technology is the clearest beneficiary, but the effects are also strongly visible in the materials and energy sectors, where demand for power and the commodities needed to construct a world of new datacentres and power plants follows more than a decade in the doldrums."

Meanwhile, costs have increased in the past year across sectors, and many expect those pressures to rise further in the months ahead, leading to an increase in consolidation.

Only 8% expect inflationary pressures to ease off in the next 12 months, with half expecting pressures would continue at the same level and 40% expecting a rise, the report found,

"It is telling then that most of the analysts covering consumer companies in the annual survey point to affordability, its impact on poorer consumers, or overall demand as their biggest concern for the year ahead," Fidelity said.