Morningstar increases LSEG uncertainty rating on LLMs' impact on data biz

Morningstar Equity Research increased the uncertainty rating from medium in a stock note, stating that while it sees LSEG as a likely beneficiary of LLMs’ demand for data “we see a greater dispersion around potential outcomes for the data business”.

Despite this, the note says: “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.”

Morningstar offers bull and bear cases. The bull says: "As machines take over much of the analytical work, data quality (eg, 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.”

The bear case offers: "The distribution of financial data is being commoditised, 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.”