Unlocking an AI-driven M&A supercycle

- Middle East turmoil spurs flight to safe-haven assets # # --------------------------------------------------------------- The key takeaways today: - What's needed for AI dealmaking to take off? - Gold rises amid the Middle East turmoil - How Saudi Arabia's investment plan is transforming its economy - Why a company aims to bring extinct species back to life - Goldman Sachs' approach to recruiting - Brainteaser: Which country has the highest-yielding long bonds? Was this newsletter forwarded to you? ([Sign up now.]( --------------------------------------------------------------- How to unlock an AI-driven M&A supercycle As generative artificial intelligence captures the attention of investors and the general public, it's primed to drive a mergers-and-acquisitions supercycle, according to the latest episode of [Goldman Sachs Exchanges](. [A number of prerequisites need to happen first]( according to a new paper, [Navigating the AI Era]( from Goldman Sachs Global Banking & Markets. Companies' adoption of generative AI solutions has to move farther from proof-of-concept to production. This will be enabled in part by greater clarity on the future of foundation models, which are trained on enormous data sets and can be used for a wide range of purposes. Legal and regulatory frameworks also need to mature. There has already been significant strategic activity this year as large incumbent technology companies have invested in or acquired generative AI startups, including some companies acquired for the sake of their talent. For most companies, “it's so uncertain what the meaning of AI is going to be for their industry that there's not a lot of M&A to do yet,” says Goldman Sachs' Matt Lucas in Global Banking & Markets. Still, there are pockets of dealmaking in areas such as legal research and customer support that are largely text-based and work well with chatbot interfaces, Lucas adds. Another area that's seeing M&A activity is among technology-enabling companies that are closest to the core of the gen AI phenomenon, explains Jung Min of Global Banking & Markets. And in the relatively small number of deals that have happened, public investors are commonly bidding up the buyer's stock price more than the price they paid for the target company, he adds. “Their investors were basically saying, ‘I like it that you're being proactive,'” Min says. --------------------------------------------------------------- Gold rises amid Middle East turmoil Gold has rallied along with other haven assets since Israel was attacked earlier this month, with the price of the precious metal recently rising two standard deviations as geopolitical tensions increased. Market prices indicate a growing probability for higher gold returns (known as right-tail risk), but not to the degree that was seen in the first weeks after Russia invaded Ukraine in 2022, according to Goldman Sachs Research. The latter may be in part because rising real (inflation-adjusted) Treasury yields have been a drag on gold this year (investors don't receive yield from commodities like gold). Goldman Sachs Research finds that the implied volatility (the market's forecast for price fluctuations) for haven assets has risen alongside equity volatility, but it's still low compared with recent highs when geopolitical or recession concerns were particularly acute. That's especially true for gold, whose volatility reached levels that were 1.8 times higher in March 2022. --------------------------------------------------------------- How Saudi Arabia's investment plan is transforming its economy Saudi Arabia's efforts to become less dependent on fossil fuels are showing signs of progress, [according to Goldman Sachs Research](. In 2021, the Saudi government launched the National Investment Strategy (NIS), an estimated $3.3 trillion plan to diversify its economy through additional support for innovation, incentives to boost the private sector's contributions, and targeted support for developing strategic sectors. Our analysts estimate that $1 trillion of the $3.3 trillion commitment could be spent through the end of the decade on preliminary investments supporting specific sectors, including clean technology, metals and mining, and transport and logistics. The NIS strategy is meant to enable Vision 2030, the government's blueprint to transform its economy. “Since the launch of Vision 2030 in 2016, Saudi Arabia has made meaningful strides in growing the non-oil economy through various developments and investments across strategic economic sectors,” Goldman Sachs Research analyst Faisal AlAzmeh writes in [the team's report](. “Investment plans are likely to develop further in tandem with technological progress/availability over time as sector strategies are finalized.” --------------------------------------------------------------- Colossal Biosciences' Ben Lamm sees ‘de-extinction' as vital to fighting climate change When he travels around the world talking about his company's plans to “de-extinct” species that no longer roam the earth, people are quick to beg Ben Lamm not to bring back dinosaurs. While Lamm has confirmed that is not on their to-do list, Colossal Biosciences has announced plans to use gene-editing technologies to bring back once-extinct species such as the woolly mammoth, the Tasmanian tiger, and the dodo bird by making them more resilient. But he says there are bigger goals in mind. Amit Sinha of Goldman Sachs and Ben Lamm of Colossal Biosciences “We have this massive biodiversity crisis that we're trying to solve,” Lamm says in a [Goldman Sachs Talks session]( with Amit Sinha, head of life sciences investing at Goldman Sachs. “We're on track to lose a significant amount of our natural biodiversity between now and 2050.” Lamm and his co-founder, renowned geneticist Dr. George Church, launched the company with the idea that bringing back extinct species would help shed light on that crisis while also building technologies to aid conservation. They believe “de-extinction” could be vital in the fight against global warming. The Paris Agreement, a legally binding international treaty on climate change adopted at the United Nations' Climate Change Conference in 2015, highlighted the potential of nature-based solutions. Lamm sees his company's work as contributing to those efforts, along with other examples such as planting trees, urban wetlands, and switching to restorative agricultural practices. --------------------------------------------------------------- Quoted at GS “We look for candidates who will bring a wide range of unique backgrounds and experiences, and therefore cast a wide net in our recruiting efforts. We saw over one million applications globally in 2022 for roles at the firm, and more than 260,000 applications for our summer internship program in 2023.” ~ [Jacqueline Arthur, Goldman Sachs' Global Head of Human Capital Management]( the firm's approach to attracting and retaining high-performing individuals as the fall recruiting season progresses. Arthur also discusses learnings from the [firm's recent intern survey](. --------------------------------------------------------------- Brainteaser: The highest-yielding long bonds Long-term interest rates have been on the rise around the world. Which of these countries' 30-year bonds had the highest yields as of Oct. 25? A) UK B) Greece C) Australia D) Spain [Check the answer here.]( --------------------------------------------------------------- Goldman Sachs in the news [CNBC]( October 24 [Five percent interest rates could be the new normal going forward, says Goldman Sachs' Beth Hammack (4:22)]( [Axios]( October 23 [Exclusive: Goldman Sachs leads small biz campaign against new bank rules]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. 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