The market is completely missing what's happening at S&P Global (SPGI 2.07%).
While investors obsess over the latest artificial intelligence (AI) start-up or trendy tech stock, this 165-year-old financial data powerhouse is quietly orchestrating one of the most compelling margin expansion stories in the market.
Image source: Getty Images.
The combination of an upcoming business spinoff, aggressive AI integration, and a management team that's already proved it can achieve 50.9% GAAP operating margins creates a setup that could deliver double-digit annual returns for the next 10 years.
The company nobody's talking about
S&P Global might not grab headlines like the AI darlings, but this $160 billion company touches nearly every corner of the global financial system. The company operates through four main divisions: Ratings, providing credit ratings on $17 trillion in debt; Market Intelligence, which deals with financial data and analytics; Indices, including the S&P 500; and Platts, which involves commodity pricing. A fifth division, Mobility, is set to be spun off in 2026.
Here's what matters: In 2021, before acquiring IHS Markit, S&P Global achieved GAAP a operating margin of 50.9%. Yes, you read that correctly. This financial services company was generating profit margins that would make most software companies jealous. Today, those GAAP operating margins are projected to be around 43% in 2025 as the company continues to digest the massive acquisition. But management has a clear path back to those historic highs.
The AI revolution Wall Street isn't watching
While everyone focuses on chatbots and image generators, S&P Global is using AI to transform the economics of financial data. The company's Kensho division, acquired for $550 million in 2018, has become the cornerstone of an AI strategy that management says is driving significant productivity gains and workflow efficiencies across operations.
NYSE: SPGI
Key Data Points
S&P Global has developed AI benchmarking tools through Kensho that evaluate large language models for business and finance use cases. These "S&P AI Benchmarks by Kensho" are gaining traction as standardized metrics to compare AI systems, with major companies such as Accenture partnering to use them. As more companies adopt these benchmarks, S&P Global could benefit from network effects that strengthen its competitive position.
The company has also deployed internal AI tools such as Spark Assist and client-facing assistants such as ChatIQ, which management describes as accelerating workflows and helping employees work more efficiently. Although specific cost savings haven't been disclosed, these initiatives are part of S&P Global's broader push to use AI to enhance margins and improve customer experiences.
The catalyst everyone's ignoring
The planned spinoff of S&P Global's Mobility division in 2026 represents more than just corporate restructuring. This business, which includes the valuable Carfax brand, generates about 11% of company revenue, accounting for $1.6 billion in 2024. Its removal will allow S&P Global to focus entirely on its highest-margin financial data and analytics businesses while unlocking an estimated $5 billion to $8 billion in value for shareholders.
Post-spinoff, S&P Global will be a cleaner, higher-margin business focused entirely on financial data and analytics. The simplified structure should help the market better appreciate the company's true earnings power. Conglomerates typically trade at discounts to focused pure plays, and removing the Mobility business eliminates that complexity discount.
Numbers that demand attention
Wall Street sees adjusted operating margins reaching 52% by 2029, exceeding even the company's 2021 peak. The company's 2025 outlook already shows progress, with guidance calling for revenue growth of 4% to 6%, GAAP earnings per share of $14.60 to $15.10, and adjusted earnings per share of $16.75 to $17.25. That gap between GAAP and adjusted earnings reflects the ongoing impact of acquisition-related amortization.
Here's the power of combining margin expansion with steady revenue growth: If S&P Global maintains 6% annual revenue growth, the high end of its 2025 guidance range, sales would reach $27 billion by 2035. Now add margin expansion: If GAAP margins return to their proven 50.9% peak from today's 43%, the earnings impact is dramatic.
Consider the math: $27 billion in revenue at a 50.9% GAAP operating margin generates $13.7 billion in operating income. After accounting for interest, taxes, and the narrowing gap between GAAP and adjusted earnings as acquisition costs fade, earnings per share could realistically reach $40 to $45, more than double today's levels. Even applying a conservative valuation multiple of 30 times earnings, which is below today's multiple, that translates to a stock price of $1,200 to $1,350.
Meanwhile, investors collect a growing dividend backed by 52 consecutive years of increases. The current yield of 0.76% might seem modest, but here's where dividend growth becomes powerful: If S&P Global continues raising its dividend at a conservative 10% annually, below its historical average, that $3.84 annual dividend could grow to roughly $10 per share by 2035.
For investors who buy today, that means collecting $10 annually on shares purchased for $504, a 2% yield on their original investment. This "yield on cost" concept rewards patient investors, as each dividend increase means more income on the same initial investment, regardless of where the stock price trades.
Why this incredible opportunity exists
S&P Global offers something increasingly rare in today's market: a proven business model with clear catalysts for margin expansion and a management team that's already demonstrated what's possible. While growth investors chase the next shiny object and value investors wait for deeper discounts, S&P Global sits in the sweet spot -- a quality compounder available at a reasonable price with multiple ways to win.
The upcoming spinoff provides the catalyst. The AI transformation provides the margin expansion. And five decades of dividend growth provides income while you wait. For investors seeking both growth and income, S&P Global's combination of margin expansion potential and reliable dividend growth makes it a compelling opportunity at current prices.
