Enhancing its Core Strategy: S&P Global pursues Spin-Off and AI-centric Approach
Spiffy Financial Exploration:
Hey there, buddy! I've recently jumped on the S&P Global (SPGI) bandwagon, and here's why! With a sturdy foundation, tech advancements, and a sharp focus on essential intelligence, this baby's got the goods to enjoy structural growth even in the rockiest times.
Despite the global chaos caused by geopolitical tensions, interest rate uncertainty, and AI revolutions, S&P has emerged as a dependableConstant in the ever-changing world. The company isn't a tech platform, bank, or stock exchange but generates income from all these markets through data, ratings, and benchmarks.
After its recent move to spin off the Mobility division, S&P is clarifying its standpoint even more on its core: "essential intelligence." The stocks pricier, but the mix of predictable cash flows, dividend growth, and AI-enhanced innovation make that tag worth it in my book. The stock has stayed somewhat steady this year, but beneath the surface, it's a beast!
Strategic Shifts and Market Evolution
With the global reindustrialization, governments increasing investments in infrastructure and energy independence, there's a rising need for financing—more corporate bonds, more credit ratings, and therefore more demand for S&P's Ratings division. At the same time, uncertainties abound: geopolitics, regulations, inflation, interest rates. So, the need for reliable data and analysis increases even more. S&P's CEO Martina Cheung summed it up perfectly: "Our clients need us more than ever in times like these."
In Q1 2025, the number of active users on S&P’s platforms jumped by an impressive 23% compared to the previous year. Investors are moving their capital from active to passive strategies, and this trend aligns perfectly with S&P's Indices division. The S&P 500 is not only a benchmark but also a revenue model: ETFs and index funds pay license fees for using it. In the first quarter, Indices revenue spiked 15% driven by higher AUM and derivatives volumes. S&P is equipped and ready for a broad spectrum of economic scenarios.
The Power of AI and Data Linking
While some firms struggle to figure out how to use generative AI, S&P has covertly built an infrastructure that exceeds the hype. Case in point: its acquisition of TeraHelix in June 2025. This small, specialized company connects complex data sets, which is crucial in situations where AI really shines when the input is spot-on. TeraHelix had been working with S&P on the internal "Gearbox" system, an application that uses Large Language Models (LLMs) and Kensho technology to spot entities and automatically link data—and now that tech officially belongs to S&P.
That's not all. Unlike data startups, S&P combines unique content (think billions of lines of market data, credit ratings, ESG scores) with its own infrastructure to intelligently link that data. For example, an AI module was launched in the first quarter that automagically converts unstructured documents into usable input for the iLEVEL platform, a popular tool in private equity. These innovations translate into scalable efficiency internally and with clients. CEO Cheung calls it "a once-in-a-generation opportunity to make smarter use of our data with AI."
Competitive Advantage in a Shifting Landscape
AI is attracting fresh competitors, but S&P remains anchored firmly. In the credit ratings landscape, S&P and Moody's form an effective duopoly, commanding about 40% market share each. However, S&P is more diverse—where Moody's is relatively dependent on the Ratings segment, S&P has additional pillars such as Market Intelligence (comparable to Bloomberg and Refinitiv), Indices (competitor of MSCI), and commodity data via Commodity Insights. This diversification makes S&P less sensitive to cycles in the capital market.
Compared to Bloomberg, S&P boasts sector-oriented depth. While Bloomberg is broad, S&P offers vertical expertise in, for example, energy, automotive, and supply chain. Compared to MSCI, S&P has less scale in ESG indices but more than compensates for this with its strong position in generic index construction (think: S&P 500) and its own ESG platform (Sustainable1). Plus, the integration with software products (such as counterparty risk tools and workflow solutions) makes it tricky for clients to switch easily. S&P is both the source of info and the provider of the tools to work with it.
Financial Performance Underpins Strategy
In the first quarter of 2025, S&P reported revenues of $3.78 billion, up 8% year-over-year. Growth was broad-based, driven by Ratings (+8%) and Indices (+15%). Operating margins were a remarkable 50.8%, up from 49.8% a year earlier. Adjusted earnings per share rose 9% to $4.37. With a trailing-twelve-month margin of 49.3%, the company is close to its historic peak.
Free cash flow exceeds $5.5 billion per year, giving S&P a lot of headroom for dividend growth, share buybacks, and investments. Long-term debt comes in at around $11.4 billion with a low average interest rate, and the sale of the OSTTRA joint venture to KKR will provide additional $1.55 billion in capital in the second half of the year. Most of this will be used for share buybacks, providing further tailwinds to earnings per share.
In terms of outlook, management expects adjusted EPS of $16.75 to $17.25 for 2025, slightly ahead of analyst consensus. Transactional revenues—such as those in Ratings—are expected to be flat this year, partly due to forward issuance in Q1, and some softening in the high yield. However, the subscription model (which represents about 75% of revenue) offers stability. At the same time, segments such as the Private Markets, Data Subscriptions, and Energy Transition are still growing double-digit.
Dividends and Valuation
S&P dishes out $3.84 per share annually, yielding about 0.8%. While the payout is on the lower side, the payout ratio of 30% indicates huge room for future increases. S&P has increased the dividend for 52 years in a row, which is a rare and impressive badge of honor! Compare that to competitors: Moody's is looking at 16 years of growth and a payout ratio of around 32%, while MSCI offers a slightly higher yield (1.3%) backed by more risk.
S&P combines this conservative dividend policy with regular share buybacks. In Q1 2025, a cool $650 million of its own shares was bought back. That contributes to the total return, especially with modest growth in the stock price. Given the strong cash flow, low debt burden, and predictable margins, the dividend policy is both sustainable and friendly to shareholders.
The valuation is robust without being excessive. With a forward P/E ratio of around 30x, the stock is lower priced to Moody's (35x) and MSCI (33x). On the downside, S&P is less agile but more diversified, has higher margins, and invests more actively in AI-driven growth.
Risks to Consider
The main risks lie in the macros. A deep recession or credit crisis would dry up the emissions market with direct consequences for Ratings revenue. The interest rate sensitivity of clients and S&P's own refinancing also remain factors to monitor. However, the debt position is strong, and the interest rate dependency is low. In addition, competition in data and benchmarks, especially due to the rise of AI startups, is a concern. But reputation, integrity, and reliability can't be replicated overnight.
Conclusion
S&P Global may not be the darling at the cocktail party, but it's one of the most reliable growth engines in the market. It earns from the global economy without being completely dependent on it. It stands tall on solid foundations (ratings, indices) but also embraces technology and AI for data integration. The Q1 figures show a company in control: strong margins, predictable growth, and a management that makes the right moves, such as spinning off the Mobility division to create space for focus and evaluation.
For my portfolio, this isn't a gamble but a building block: a stock that doesn't have to double its price to be valuable. The combination of dividend growth, operating leverage, and technological acceleration makes me buy this stock with a 3+ year horizon confidently. My take? Strong Buy!
- The government's increasing investments in infrastructure and energy independence create a rising need for financing, which bolsters the demand for S&P Global's Ratings division.
- S&P Global's CEO, Martina Cheung, highlighted that their clients require essential intelligence from the company more than ever in times of uncertainty, such as geopolitical instability, regulations, inflation, and interest rates.
- In the ever-evolving business landscape, S&P Global harnesses the power of artificial intelligence (AI) and data linking to offer scalable efficiency for both internal operations and clients.
- The diversified business model of S&P Global provides competitive advantages in a shifting landscape, making it less sensitive to capital market cycles and offering sector-oriented depth compared to competitors like Bloomberg and MSCI.
