With mega technology companies issuing billions of dollars of bonds to fund their artificial intelligence needs, now is a good time to be a credit-rating agency. And S&P Global (NYSE: SPGI) is the biggest.
The big tech companies like Alphabet (NASDAQ: GOOGL) and Meta (NASDAQ: META) have issued a combined $150 billion-$200 billion of bonds this year to fund their artificial intelligence needs, such as data centers. And Goldman Sachs estimates the total will reach $250 billion by year-end.
Investors count on the credit ratings of S&P (and its competitor Moody’s (NYSE: MCO)) to gauge bonds’ safety. The ratings are vital to bond issuers, as they need investors to buy their bonds. Higher ratings mean the bonds are investment grade, while lower ratings indicate junk bonds. Bond issuers pay S&P for its ratings.
S&P’s rating revenue accounted for 35% of its total in the third quarter. Its market intelligence unit accounted for 34% of revenue, its energy unit for 18%, and its indices unit for 15%. (The numbers total more than 100% because of rounding and internal financial adjustments.)
Market intelligence provides financial research, such as data and analytics. Energy offers research for the energy, petrochemicals, metals, and agriculture markets. Indices (S&P Dow Jones Indices) creates, calculates and licenses indices such as the S&P 500 and Dow Jones Industrial Average.
Strength in ratings
Analysts are particularly impressed with the ratings segment. The global acceptance of S&P and Moody’s ratings by investors across the globe “makes it essential for corporate issuers to get a rating on any debt they issue,” notes Morningstar analyst Rajiv Bhatia. And that, of course, puts money in the till for S&P.
Bond issuers who have a rating from S&P or Moody’s often save 30-65 basis points a year in interest payments, he wrote in a commentary.
Analysts don’t think as highly of the market intelligence unit, with its flagship Capital IQ. “Competitors such as Bloomberg, FactSet (NYSE: FDS), and LSEG are more formidable, and the rise of artificial intelligence may alter business models,” Bhatia said.
Platts is the foundation of S&P’s energy unit. It’s basically an index business for commodities. “Similar to how the S&P 500 dominates U.S. large-cap equities, … typically one benchmark dominates a certain commodity,” he said. And that’s often Platts.
The S&P 500 is the flagship for the indices division. S&P Global makes money on indexes mostly in three ways: index subscriptions, asset-linked fees, and transaction royalties on exchange-traded funds, futures and options, Bhatia explains. As for ETFs, the largest ones in the market focus on the S&P 500, and index switches are rare.
Earnings buoyancy
S&P Global posted strong earnings in the third quarter. Revenue gained 7% year over year, and adjusted net income climbed 9% a share. The adjusted operating profit margin increased to 53.5% from 52.9% a year ago. And S&P increased its full-year 2026 revenue estimate for the ratings and index units. Notably, competitor Moody’s didn’t raise its guidance.
To be sure, S&P’s stock hasn’t done much over the past year, gaining just 2.5%, compared to 12.4% for the S&P 500. But much of that underperformance stems from investors souring on software-dependent stocks in light of the AI explosion.
Keshav Merchant, an analyst at Focus Wealth Partners told Barron’s that reasoning is off base for S&P. He cites “the proprietary and contributory nature of much of S&P Global’s data, the fact that its workflow tools are highly embedded in regulated financial services customers, and those workflow tools often embed data that is unique to SPGI.”
So S&P Global may merit a high rating.
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