London Stock Exchange: Rapid LLM Development Pace Increases Uncertainty; Base Case Unchanged

Key Morningstar Metrics for London Stock Exchange Group

• Fair Value Estimate
  : GBX 11,900
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

We increase our Uncertainty Rating to High from Medium for London Stock Exchange Group LSEG.

The bottom line: Our increased Uncertainty Rating reflects the rapid pace of change in large language models and their potential impact on LSEG’s data business. Although we believe LSEG is likely to be a beneficiary of LLMs’ demand for data, we see a greater dispersion around potential outcomes for the data business.

• Our base case remains unchanged. We believe LSEG’s datasets cannot be easily replicated. Also, we expect demand for LSEG’s data to remain robust because LLMs deployed in financial analysis allow for wider distribution, more frequent data calls, and pricing resilience for the highest quality datasets.
• Our fair value estimate of GBX 11,900 per share and wide economic moat rating are unchanged.

Bulls say: As machines take over much of the analytical work, data quality (e.g., frequency, completeness, length), data ownership, and data uniqueness will become more valuable.

• Many of LSEG’s customers rely on auditable, replicable, and compliance-approved software tools that LLMs are unlikely to replace easily.

Bears say: The distribution of financial data is being commoditized, which could result in much of LSEG’s workflow and analytics investments not recovering the investments.

• Data usage will move from seat-based-pricing subscriptions to API feeds, which could strengthen the buying power of financial institutions. LSEG could be facing equal or higher investment needs and revenue pressures, resulting in structurally lower margins.