Never mind America’s real economy. Its deal economy is booming

America’s first merger wave began in the 1890s and forged giants in steel, oil and railroads. A second preceded the crash of 1929. Executives assembled conglomerates in the 1960s; private-equity firms dismantled them in the 1980s. The bursting of the internet bubble, the financial crisis and higher interest rates ended takeover waves in 2000, 2007 and 2022. Now an eighth is gathering strength. Like its predecessors, it is energised by technological promise, enthusiastic credit markets, willing politicians and striving bosses.

The number of mega-deals—mergers, acquisitions and investments worth over $10bn—announced this year is approaching a record high (see chart 1). The third quarter was one of the busiest in history. Donald Trump’s MAGA revolution is yet to upend the real economy. Look to the deal economy, though, and American capitalism is permanently changed.

Historic tie-ups are coming thick and fast. In July Union Pacific and Norfolk Southern, two of America’s four “Class I” railroads, agreed to merge. The $55bn leveraged buy-out of Electronic Arts (EA), unveiled in September, is the largest ever. Jensen Huang and Sam Altman, the bosses of Nvidia and OpenAI, have woven a web of cross-holdings which, should it tear, would tank markets. The state has acquired equity at a rate not seen since the bank rescues of the financial crisis.

Deals usually beget more deals. The other two big railroads, BNSF and CSX, may themselves be spurred to merge. The artificial-intelligence boom is making hot property of data centres. GIP, an infrastructure firm, is in talks to buy Aligned Data Centres for around $40bn. Investors are rewarding any news of hefty AI investments with scant thought for returns, encouraging firms to go for even more. They have also enthusiastically welcomed the government as a shareholder.

What analysts call “animal spirits” is a mixture of two things: confidence and capital. Confidence in the economy is stronger than it was in April, when Mr Trump launched his barrage of “reciprocal” tariffs. Capital is cheap and plentiful. Spreads on high-yield bonds—the difference between risky companies’ borrowing costs and those of America’s government—are nearly as low as they were in 2007 (see chart 2).

Long frustrated takeovers are going ahead. In mining, Anglo American said in September that it would merge with Teck, a Canadian copper-miner, in a deal worth over $50bn. Glencore had tried to buy Teck in 2023; BHP pursued Anglo in 2024; Glencore and Rio Tinto had considered a deal. Some unsuccessful mergers of the past are being unwound. Warner Bros Discovery, a media giant formed in 2022 through the union of Discovery and WarnerMedia, is already breaking up. In September Kraft Heinz, a food giant, said it would split, a decade after being sandwiched together.

Two things make the latest wave special. The first relates to Mr Trump’s paradoxical approach to free markets, which involves a light touch on antitrust while using deals, along with tariff exemptions, as tools of private-sector coercion and industrial policy. Anything goes until it displeases the boss, as in a casino. Second, technology firms have gone on a buying spree of unprecedented voracity and variety.

After last year’s election, executives worried that MAGA antitrust policy would combine the anti-scale activism of Joe Biden’s presidency with Mr Trump’s bullying style. The tie-up between Skydance and Paramount, two media companies, was delayed until Paramount paid $16m to Mr Trump’s presidential library to settle his complaint about an episode of CBS News’s “60 Minutes”.

But bosses, by and large, are pleased. In June regulators reached a deal to allow the acquisition of Juniper Networks, a telecoms firm, by Hewlett Packard Enterprise after at first trying to block it. Two Department of Justice officials appointed by the Trump administration were fired; one decried “MAGA-in-name-only” lobbyists putting the “populist conservative agenda” at risk. Rules on bank mergers have also been thinned. This month Fifth Third said it would buy Comerica to create America’s ninth-largest bank. Further consolidation of America’s 4,400 lenders looks likely.

Proximity to the administration helps. MGX, an Abu Dhabi fund which this year used a cryptocurrency linked to the president for a $2bn deal, is expected to become an owner of TikTok’s American business. Saudi Arabia’s sovereign-wealth fund is among the buyers of EA. The consortium includes Jared Kushner, Mr Trump’s son-in-law, who has since helped broker the Gaza peace deal. Investors doubt that the buy-out will face many regulatory hurdles.

Promises of big investments and presidential control are useful too. The sale of US Steel to Japan’s Nippon Steel is a case in point: Mr Biden tried to block the deal, citing spurious national-security risks. Little effort was made to engage with Nippon. But Mr Trump and his team are much easier to get on the phone. Nippon promised to put $14bn into US Steel and give Mr Trump a veto over some decisions—which the administration threatened to use last month to prevent a plant closure in Illinois.

Shareholders have rewarded similar interventions. Intel’s share price has risen by 50% since the state took a 9.9% stake in the chipmaker in August. Those of MP Materials, Lithium Americas and Trilogy Metals, three mining firms, have also soared since Uncle Sam became part-owner.

The greatest excitement, however, surrounds AI. New technologies often contort the corporate form. AI is doing so especially quickly. Some tech firms are absorbing high-flying AI talent through licensing deals with startups that stop short of full acquisitions. More important, though, are the polyamorous relationships and cross-holdings emerging within the industry.

Nvidia has become the world’s most valuable firm because its chips are the AI industry’s physical lynchpin. Increasingly, its deals are the financial equivalent. According to PitchBook, a data provider, Nvidia has invested in 50 firms this year alone. Many are tiny: at the end of July the firm valued its ownership of private companies at just $4bn.

Some are not. Nvidia owns around 7% of CoreWeave, a highly leveraged firm that is expected to spend more than $10bn on Nvidia’s chips this year before renting them out to big tech companies (Nvidia recently signed a $6bn agreement to guarantee CoreWeave’s revenue). It has also put $5bn into Intel and is providing some of the $20bn being raised by Elon Musk’s xAI, which is yet another customer.

Most important is its investment in OpenAI. From next year Nvidia will put up to $100bn into the developer of ChatGPT. The ten-gigawatt (GW) deal could translate into $400bn of revenue for Nvidia. Nvidia thus secures a customer for its chips, while OpenAI reduces the cash required to buy them. Goldman Sachs, a bank, reckons that the agreement will cover over a quarter of OpenAI’s operating costs next year.

OpenAI has built its own web of cross-holdings with firms that are, in turn, building their own. It has its own stake in CoreWeave, as well as a revenue-sharing agreement with Microsoft. In October OpenAI said it would use 6GW of chips from Advanced Micro Devices, Nvidia’s main rival. AMD handed over warrants which would convert into 10% of its equity.

The fine print of these deals is kept secret, giving shareholders little idea of what has been agreed and raising the chance of double-counting and concentration risks. Even Japan’s notorious (and inefficient) cross-holdings might be put to shame by the resulting complexity.

The ends of previous deal booms make grim reading. A change in antitrust enforcement could spoil the fun, as with the first wave, in 1904. That said, deregulation keeps bosses on Mr Trump’s side. Another possibility is that credit markets crack, as in 2007. Many takeover booms, though, have ended with a stockmarket crash. This time, it is possible that tech’s deal structures will cause or exacerbate the mess—making it all the harder to untangle. ■