Key Morningstar Metrics for London Stock Exchange Group
- Fair Value Estimate: GBX 11,200
- Morningstar Rating: ★★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
London Stock Exchange Group LSEG stocks fell 9.7% on Feb. 3, caught in a broader selloff across software and financial data stocks. The trigger appears to have been a new AI plug-in by Anthropic, reigniting concerns around AI-driven disintermediation of data providers.
Why it matters: LSEG bet heavily on a data-centric strategy with the acquisition of Refinitiv in 2021, now deriving about 61% of its revenue from data-related businesses.
- In 2022, LSEG announced a partnership with Microsoft to co-develop AI-driven financial data tools, leveraging LSEG’s datasets. The rollout of new products has been slow, however, and management has remained vague about clear AI-related growth targets.
- Over the past six months, LSEG announced integration with OpenAI and Anthropic, allowing ChatGPT and Claude users to run financial analysis prompts on a subset of LSEG’s datasets. Importantly, AI agents can only use LSEG’s data if individual users have a subscription with LSEG.
The bottom line: We maintain our GBX 11,200 per-share fair value estimate for LSEG and see shares as very attractive. LSEG’s strength lies in data ownership, not in the distribution of the data. Our wide moat rating is unchanged.
- We view AI agents and LLM users as LSEG customers, not competitors. We also think breadth, depth, and data quality will become more valuable as the use of AI agents increases.
- LSEG owns various proprietary datasets that are hard to replicate, most of which rely on LSEG’s position as a mission-critical financial infrastructure provider and are supported by switching costs and intangible asset moat sources.
Long view: Distribution channels of financial data are changing rapidly from a terminal-based market to AI agent-focused consumption of financial data.
- As analytic capabilities advance and spread to a wider audience, we think data depth, breadth, and quality will become greater differentiators, which should accrue greater value to those providers that own unique data sets.
