Pharma and Defense Bet Big on AI, But Valuation Risks Loom

Swiss pharmaceutical giant Novartis AG (NOVN.S) has agreed to acquire Avidity Biosciences Inc for $12 billion, marking one of the largest deals in the biotech sector this year. The acquisition, announced on October 26, underscores Novartis's push into advanced therapies and aligns with broader industry trends where companies are leveraging mergers and acquisitions (M&A) to accelerate innovation in artificial intelligence (AI) and data-driven drug development.

The move comes as high-growth companies increasingly prioritize AI integration to maintain competitive edges. A recent Forbes Research 2025 AI Survey revealed that firms with 10% or more annual revenue growth share common strategies, including high-level collaboration on AI initiatives, advanced metrics for tracking AI outcomes, and algorithmic forecasting to anticipate market shifts. Notably, 33% of these companies use AI for competitive intelligence, compared to 20% industry-wide, highlighting a strategic shift toward data-centric decision-making.

Novartis's acquisition of Avidity, which specializes in gene therapy and protein engineering, reflects this trend. By integrating Avidity's cutting-edge platforms, Novartis aims to fast-track the development of therapies for neurodegenerative diseases and other complex conditions. The deal also signals a broader sector-wide bet on AI-driven R&D, as pharmaceutical companies seek to reduce trial-and-error costs and expedite drug discovery timelines.

Meanwhile, the defense and AI sectors have seen their own M&A frenzy. Palantir Technologies Inc (PLTR), a leader in AI-powered data analytics, has seen its 300% stock surge in 2025, fueled by a string of high-profile contracts with the U.S. Army, UK Ministry of Defence, and commercial partners like Boeing and Snowflake. The company's revenue hit $1.03 billion in Q2 2025, with management raising full-year guidance to $4.15 billion. Analysts remain divided, however, with some calling Palantir "one of the best AI stocks" and others warning its $400 billion valuation is "absurd".

Smaller players are also chasing AI-driven growth. BigBear.ai Holdings (BBAI), a defense-focused AI firm, has seen its 300% surge year-to-date, drawing comparisons to Palantir. Recent contracts, including a partnership with Tsecond Inc to deploy edge-AI systems for U.S. military use and a facial recognition rollout at Chicago O'Hare Airport, have bolstered investor confidence. However, BigBear's Q2 2025 results revealed an $18% revenue decline and a $228.6 million net loss, raising questions about its ability to scale profitably.

The Forbes survey highlights a key challenge: while 62% of high-growth companies expect significant ROI from AI investments, regional and industry adoption varies widely. North American firms lead in enterprise-wide AI use (69%), outpacing Europe, the Middle East, and Africa (49%), while technology and automotive sectors dominate adoption (76% and 73%, respectively). This divergence suggests that companies like Novartis and Palantir may face hurdles in replicating their strategies across geographies or industries with less mature AI ecosystems.

Industry experts warn that valuation risks loom large. Palantir trades at ~100× forward sales, a multiple rivaling legacy defense giants despite annual revenue of just $4.15 billion. Similarly, BigBear's stock, at 13× forward sales, is seen by some analysts as overpriced relative to its financials. "Execution needs to keep up with sky-high expectations," noted a Reuters analysis, cautioning that any missteps in contract delivery or growth could trigger sharp corrections.

As companies continue to pursue AI-driven M&A, the balance between innovation and valuation sanity will remain critical. Novartis's Avidity deal, Palantir's defense contracts, and BigBear's airport AI deployments all illustrate the transformative potential of AI-but also the volatility of markets betting on its future.

Novartis to acquire Avidity Biosciences for about $12 billion https://www.reuters.com/business/healthcare-pharmaceuticals/novartis-acquire-avidity-biosciences-12-billion-2025-10-26/

The Winning AI Strategies Of High-Growth Companies https://www.forbes.com/sites/forbes-research/2025/10/28/high-growth-ai-strategies-forbes-research-ai-survey/

Palantir's $400 B AI Surge: PLTR Stock Hits Record High in 2025's 300% Rally – What's Next? https://ts2.tech/en/palantirs-400-b-ai-surge-pltr-stock-hits-record-high-in-2025s-300-rally-whats-next/

BigBear.ai Stock's 300% Surge Sparks Palantir Comparisons in Defense AI Frenzy https://ts2.tech/en/bigbear-ai-stocks-300-surge-sparks-palantir-comparisons-in-defense-ai-frenzy/