February '25 TMT Market Update

Wayne Muthuri, Anlayst

Overview
In early 2025, the TMT (Technology, Media, Networking, and Telecommunications) sector is progressing with significant changes driven by consumer behaviors, cybersecurity needs and an increasing focus on regulations. Technology companies are investing heavily in AI, investments are being directed toward expanding AI-driven cloud computing capabilities, enhancing data center infrastructure, and optimizing semiconductor development for machine learning applications. M&A activity is expected to remain strong as PWC highlights that the software segment, encompassing AI and cybersecurity, grew by 38% between 2023 and 2024. Additionally, PWC’s forecast highlights that 76% of TMT CEOs who made a significant acquisition in the past three years are planning to make one or more strategic acquisitions in the next three years. This trend is expected to persist, fueled by advancements in AI and heightened cybersecurity demands. Geopolitical changes are also expected to play a role in M&A. The potential impact of changing policies, stances on antitrust, and tariffs could create a new environment for the sector. A deregulated environment could boost M&A, but a complex regulatory scene might mean the impact will be territory specific. For example, the trade and tariff tensions between the U.S and China may further complicate cross-border transactions, potentially leading to a preference for domestic deals over international expansion.

Per, PWC

TMT in the News

Elon Musk's Bid for OpenAI Raises Eyebrows
The artificial intelligence sector is facing renewed volatility following Elon Musk’s unsolicited $97.4 billion bid for OpenAI. Musk, who is backed by several investors, attempted to acquire OpenAI as the company moves into a for-profit structure. OpenAI CEO Sam Altman rejected the bid, citing concerns that Musk is attempting to disrupt OpenAI’s momentum. This move has raised questions about OpenAI’s valuation and how it compensates its nonprofit arm in the restructuring process.

Musk’s aggressive bid has implications beyond OpenAI, influencing investor sentiment across the AI and tech landscape. OpenAI is currently in the process of raising up to $40 billion in new funding, and is negotiating with key stakeholders such as Microsoft, which has already invested nearly $14 billion. If Musk’s offer is viewed as a fair valuation, it could drive up expectations for AI-related investments and increase competition in space. This development also places additional pressure on regulators in California and Delaware, who must assess the fairness of OpenAI’s nonprofit-to-for-profit transition.

Per the Wall Street Journal

Q1 Earnings

Tech Giants Report Strong Q1 Growth Despite Economic Uncertainty
Apple posted strong earnings in Q1, surpassing December expectations. The company reported an EPS of $2.40 vs the estimated $2.35. Apple did underperform in iPhone sales, reporting $69.14 billion against the $71.03 billion estimate. Despite the slow in iPhone sales, the company cites confidence in the implementation of its new AI features as investors eagerly wait for Apple’s AI integration.

Microsoft also showed strong demand for Azure cloud services and AI-driven business applications, helping drive an 11% increase in revenue. However, the company faced challenges in its hardware and gaming segments, with Xbox sales falling short of projections. Most importantly the stock fell 5% after the company reported lower quarterly earnings from Azure and other cloud services.

Per Wall Street Journal, Barron.

M&A Activity

Blackstone and Vista Equity Partners acquired Smartsheet, a leading software-as-a-service (SaaS) platform, for $8.4 billion. The acquisition highlights a growing demand for software that drives efficiency for project management and collaboration.

In the Media space, Disney’s online streaming service struck a deal with FuboTV. The Walt Disney Company has agreed to combine FuboTV Inc, with Hulu + Live TV products, therefore obtaining a 70% controlling share of the company. The move aims to improve Disney’s live TV and sports offerings.

Broadcom and TSMC are exploring potential methods to split Intel. Broadcom is evaluating Intel’s chip design business, while TSMC is considering acquiring control of Intel’s chip planets. Discussion remains in the early stages due to regulatory concerns over foreign ownership of Intel U.S. facilities.

Per Wall Street Journal, and Reuters