FactSet Research Systems (FDS)

FDS is a data and analytics provider similar to Bloomberg Terminal and CapitalIQ. They distribute data to 95 of the top 100 global asset managers, three-quarters of the top 50 global investment banks, have 9k+ clients and 241k users.

The main risk against FDS is not that companies are going to stop using FactSet because AI has replaced their services, but the secondary effects of their clients needing less employees. If an employee can use AI to do the work of two people, the firm may not need that second person, and that's one less FDS seat to pay for. FactSet's revenue is largely per-user. So, a modest reduction in seats would show up pretty quick against ASV growth. ASV is 'annual subscription value' and is the next 12mo revenue expected from current subscriptions provided to customers.

What's more likely is FDS integrates AI into their services so that their customers don't have to. They recently appointed a Chief AI Officer, launched MCP integrations (API volume tripled in March vs. February), and are launching other AI products like AI for Banking.

So far, not only is FDS still experiencing organic growth across all segments, but they increased guidance from 4.2-6.2% organic ASV growth to 5.4-6.7% for FY2026. Client retention and ASV retention are unchanged from a year ago. User count and client count have increased.

Despite nothing but fears of impact on the business to-date, the stock is -50% on the 1 & 2YR, -30% on 5Y, and +45% the past 10Y.

A decade ago, FDS was doing around $5 FCF/sh on ~$24/sh revenue with $3.50/sh net cash and trading at $160/sh. Organic ASV was up 9.2% from the previous year. Adjusted operating margins for the previous three years was ~33%.

Today they're doing $18 FCF/sh on ~$63/sh revenue with $29.25/sh net debt and trading at $231/sh. Organic ASV growth guidance is 5.4-6.7% for 2026. Adjusted operating margin guidance is 34-35.5%.

I expect one of two things to happen. Either the market is correct and margins and/or organic ASV growth deteriorates, validating the current valuation. Or, margins and growth sustain and the market reprices the stock as fears subside.

I'm not saying the former is impossible. But the market is applying a confident discount to an outcome that has not shown up in the numbers yet. Yes, markets are forward-looking. Sometimes that's antsy, fearful and over-exaggerated. For a business as attractive as FactSet, I find the current valuation appealing.

I think FDS is worth at least $350/sh.

Disclaimer

I am not a licensed financial advisor. Nothing I say or do constitutes any sort of professional investment, legal, accounting et al advice. This is my public research journal. You should always do your own work, check your own facts, and make up your own damn mind. I am not liable or responsible for any decisions or adverse effects you experience if you make decisions or form opinions based on what I write.