LSEG slowly sheds ‘AI risk’ tag with drive to show growth

[LONDON] London Stock Exchange Group’s (LSEG) public push to shed its tag as a likely loser to AI technology is starting to convince some shareholders and lift its share price.

LSEG shares tumbled nearly 13 per cent in one day in February as worries about the threat posed by large language artificial intelligence models like Anthropic’s Claude triggered a sharp sell-off in software stocks.

The market is now coming around to the idea that the impact on pricing for LSEG’s products and market share for its data business may be less severe than previously thought, five analysts and investors told Reuters.

Since US activist investor Elliott Management was reported in early February to have begun building what it has called a “significant stake” in the company, the share price has risen 27 per cent, although it remains 23 per cent below a peak hit in 2025.

And while it is too early to call LSEG an AI winner, UBS last month removed it from a basket of companies it believed could be disrupted by the new technology. Reuters couldn’t ascertain the reason for UBS’ decision.

LSEG will have to demonstrate that it can generate enough revenue from its own AI initiatives, UBS analyst Michael Werner said: “There is still a ‘show me’ story (for AI). It’s one thing to have usage, it’s another to start charging people.”

The share price rally could give LSEG CEO David Schwimmer more time and support to pursue his strategy for the financial data and analytics heavyweight and close a valuation gap. Some investors and analysts have called for “value-enhancing” actions, among them increasing a £3 billion (S$5.2 billion) stock buyback programme announced in February and even spinning off the London Stock Exchange, which LSEG operates.

LSEG shares trade at about 18 times forward earnings, a discount to Moody’s of about 30 per cent and MSCI of around 40 per cent, although it trades at a premium to US-listed data and analytics business FactSet.

“It’s actually pretty cheap compared to other data companies,” Deutsche Bank analyst Benjamin Goy said.

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Of 20 analysts covering LSEG, 90 per cent rate the stock either a ‘buy’ or a ‘strong buy’ and none have a ‘sell’ rating. On average, analysts expect LSEG’s shares to rise by 35 per cent over the next 12 months, based on their target prices.

LSEG has outperformed Britain’s blue-chip FTSE 100, which is little changed since Elliott called for more action, while London-listed software and data providers Experian and Sage are up 5 per cent and 2 per cent, respectively.

Asked for comment about its performance, LSEG pointed to previous statements that it has made “great strides” embedding AI into its Workspace news and data platform.

LSEG is the largest customer of Reuters, which provides news for Workspace and other products.

Upping the dialogue

Analysts said investor perceptions had changed after LSEG’s full-year results on Feb 26, when it gave details about its Model Context Protocol (MCP) server, which feeds some proprietary datasets to third-party AI agents and LLMs.

At its first-quarter trading update in April, LSEG continued to flag growth and revenue opportunities from the MCP server. It cited “strong uptake”, with over 90 customers connected and a pipeline of 60 more, while its total first-quarter income was up 9.8 per cent, its strongest performance in more than five years.

“They have stepped up in their communication, their disclosure, in terms of how they are part of the AI ecosystem rather than competing against it,” said Hubert Lam, head of European speciality finance equity research at BofA Global Research.

Elliott, which Reuters previously reported had been pushing LSEG to improve its communication around the AI threat, declined to comment on its investment.

Lindsell Train, a top-five LSEG shareholder, said in March that it had been adding to its position.

Nick Train, who manages the group’s UK equity portfolios, said in a note in May that the decline in shares of London-listed data, software and platform companies could offer a “once-in-a-decade opportunity to access exceptional growth assets at fundamentally the wrong price”.

Another top-30 shareholder, who also recently added to their position, said there was an opportunity for investors who believe the market is underpricing the value of intellectual property.

Investors still see threats from AI technology.

“I don’t believe the risk (of disruption from AI) is minimal,” said Stephen Yiu, chief investment officer of the Blue Whale Growth Fund, which holds a small stake in LSEG. He said that to become an AI winner, the company might need to slim down and focus on its core business.

The rollout and delivery of LSEG’s 10-year partnership with Microsoft has also disappointed some investors, Reuters previously reported.

That partnership is now less likely to drive the equity story than when it was announced in December 2022, UBS’s Werner said. Expectations of the tie-up have declined and investor focus has shifted to how LSEG will perform in an environment of increasing AI adoption among its client base, he said.

Most recently LSEG has been caught up in a fight over UK plans for an equities “tape” that could threaten LSEG’s data business, by publishing data that LSEG charges investors for. REUTERS