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The spate of M&A news over the weekend and on Monday has analysts feeling bullish about where CEOs see things going from here, as markets (and notably the embattled tech sector) post a rebound.
“You have a lot of companies and CEOs showing quite a bit of conviction in the ability to go out and spend billions of dollars to basically enhance the size of their companies and get into new product lines. That’s a vote of confidence in what the future state is,” says Wells Fargo Investment Institute’s senior global market strategist Sameer Samana.
In big deal news first reported over the weekend, Oracle just confirmed a deal with Gen Z-favorite TikTok’s owner ByteDance to serve as the app’s “trusted technology provider” (not a traditional sale). The proposed partnership deal would be “a positive to Oracle’s Cloud business and would give it another large marquee customer after landing Zoom Video in April 2020,” and could hypothetically generate at least $630 million in revenues, analysts at Bank of America wrote Monday (Oracle’s stock was up over 4% at Monday’s close). The deal was long fought over by the likes of Microsoft and Walmart.
Elsewhere, Nvidia scored a big A.I. deal with its acquisition of Arm from SoftBank Group for $40 billion in the biggest semiconductor deal ever. Meanwhile, on the healthcare front, Gilead Sciences snapped up cancer treatment maker Immunomedics for roughly $21 billion.
Overall, analysts believe the bevy of new deals hitting the newswires is a show of confidence on the part of Corporate America that is “incredibly encouraging” for investors, says Samana. “It probably helps with sentiment and animal spirits by quite a degree to have these CEOs be willing to pay premiums for companies that aren’t necessarily cheap,” he says.
Indeed, Commonwealth Financial Network’s Peter Essele believes “this isn’t the end of it either”—he thinks we’ll continue seeing deals announced as many big tech names are “flush with cash.”
And while coronavirus vaccine talk is certainly nothing new (and is likely already priced in to markets), investors were also encouraged by bits of good news on vaccine front Monday. After having coronavirus vaccine trials halted in its tracks recently, drug maker AstraZeneca resumed testing for its Phase 3 trials for the U.K. over the weekend. Pfizer, on the other hand, said Sunday a vaccine might even be distributed as early as the end of this year if all goes well, although there’s been pushback on how realistic that timeline is.
Investors will “absolutely get bumps every time you see a little bit of news coming through. That’s not what’s going to be driving the long-term trend, but as far as day-trading and weekly trading, that just helps the positive momentum that’s already being drummed up by the improvements in the economy,” notes Essele.