Key insights
- S&P Global's stock has declined due to fears of AI disruption and a softer-than-expected earnings forecast, leading to a 25% drop from its 52-week high. Despite these concerns, the article suggests the current dip presents a buying opportunity as the stock trades at its cheapest valuation since late 2022. The company's position in financial data and digital platforms is highlighted, with the potential for AI to impact its business model being a key investor concern.
Software and financial technology stocks took a hit earlier this year when fears around generative artificial intelligence (AI) sent shock waves across the market. Product rollouts, such as Anthropic's Claude and OpenAI's automation tools, sent the software-focused iShares Expanded Tech-Software Sector ETF tumbling.
One company caught up in this wave of selling is credit rating company and financial data provider S&P Global (SPGI 1.63%). Since the start of the year, S&P Global's stock price has fallen 17%. It's down 25% from its 52-week high amid AI fears and a softer-than-expected earnings forecast.
However, the dip could be a buying opportunity for investors today. Here's why.
S&P Global fits within the broader software and information services ecosystem, thanks to its digital platform and financial datasets. The biggest fear among investors is that data providers such as S&P Global could face disruption from AI developers like Anthropic, which could synthesize market insights and undermine S&P Global's pricing power and premium, subscription-based business model.
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On top of this, the company announced disappointing 2026 earnings-per-share (EPS) guidance during its February earnings call. The company forecast adjusted EPS of $19.40 to $19.65, falling short of Wall Street's $19.96 estimate. The guidance disappointed investors, who were expecting stronger growth in its Credit Ratings and Market Intelligence segments.
Following the sell-off, S&P Global stock is priced at 27.4 times earnings and 22 times forecast earnings, putting it at its cheapest valuation since late 2022. The dip represents an opportunity for investors to scoop up this blue chip stock at a reasonable price.
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S&P Global has several structural advantages that should help it navigate the current market landscape. For one, the company dominates the credit ratings industry, holding a 50% market share. Moody's ranks second, with a 31% market share.
Issuing credit ratings requires expertise and, more importantly, trust among major institutions. This, along with other barriers to entry, makes it difficult for new entrants to break into the space, giving S&P Global a strong competitive advantage.
In addition, the company's proprietary, institutional-grade datasets are protected by intellectual property rights. The company should be a beneficiary of AI, which enables it to integrate advanced analytics to drastically reduce operational costs, accelerate workflow automation, and expand operating margins, which came to a solid 52% during the first quarter.
Later this year, S&P Global will spin off its mobility division, a move expected to unlock value for both S&P Global and the newly formed business. The new company, Mobility Global, will focus on automotive data and intelligence, making S&P Global a pure-play financial services company.
S&P Global is a high-quality business with robust competitive advantages that have helped it navigate difficult market environments for decades. This is evidenced by the company's 53 years of increasing its annual dividend, making it a coveted Dividend King, a stock that has raised its dividend payouts for 50 years or more.
For investors looking to add quality names to their diversified portfolio, S&P Global is an excellent pick right now.