Shares of global index and analytics provider MSCI (MSCI 10.14%) are down 10% today as of 3 p.m. ET on Tuesday after the company reported second-quarter earnings that disappointed the market.
NYSE: MSCI
Key Data Points
While sales and adjusted earnings per share (EPS) grew 12% and 19%, respectively, these totals came in shy of Wall Street's expectations. Making matters worse, MSCI slightly raised its 2026 expense guidance as it integrates its new acquisition, First Street, a climate-risk modeling firm.
Ultimately, I don't think today's results are anything to panic about, and I think the market's reaction might be overdone. While MSCI may have previously been priced for perfection in recent years -- frequently trading above 40 times free cash flow (FCF) from 2020 to 2024 -- it currently trades at a much more reasonable 29 times FCF. At this valuation, I think MSCI's Q2 results were perfectly fine, maybe not world-beating, but fine.
Image source: Getty Images.
The biggest issue facing MSCI stock is probably the same one facing the vast majority of stocks: how will it survive in a world of AI? Independent and/or AI indexing both pose the potential to undermine MSCI. Similarly, AI could take over some of the analytics capabilities that MSCI's asset-management customers typically rely on. That said, MSCI's mega-clients would need to build massive in-house capabilities, incur significant switching costs, and face various legal risks to deploy their own solutions and replace MSCI, which I don't see as particularly likely or imminent.
Anchored by these sticky core index and analytics operations -- and the growth potential tied to its private assets, sustainability, ESG, and climate analytics businesses -- MSCI could prove to be a steady-Eddie outperformer going forward. Its P/FCF ratio of 29 is the lowest it has been since 2019, yet MSCI has grown sales, EPS, and dividend payments by 13%, 15%, and 18% annually over the last five years, which doesn't scream "disruption" to me just yet. I'd argue that MSCI is worth a long look for buy-and-hold investors, as it is one of hundreds of stocks being preliminarily punished by AI disruption.
