A first look at S&P Global, Intercontinental Exchange, and Alcon; I'm reminded of the Internet bubble
1) Last week, my college buddy Bill Ackman's firm, Pershing Square (PS), reported earnings for the first time as a public company. Here's the shareholder letter, earnings call, and Q&A.
Bill has built an outstanding long-term track record by owning a concentrated portfolio of high-quality companies and holding them for many years. In any given quarter, there's usually very little turnover – typically only one new or exited position.
So it was very unusual to see him add six new positions last quarter.
In Friday's e-mail, I shared my thoughts on the first three – Netflix (NFLX), Mastercard (MA), and Visa (V) – all of which I like.
Today, let's look at the remaining three: S&P Global (SPGI), Intercontinental Exchange (ICE), and Alcon (ALC)...
S&P Global
S&P Global provides benchmarks, data, analytics, and workflow solutions. It serves the global capital, energy, commodity, and automotive markets.
It operates through four segments: S&P Global Market Intelligence, S&P Global Ratings, S&P Global Energy, and S&P Dow Jones Indices.
I use one of its services, Capital IQ, to quickly access companies' historical financials and produce data for the charts you see in many of my e-mails.
S&P is a great business, and the stock has been a monster. It rose from a low of around $20 in 2009 to an all-time high of $550 a year ago.
But since then, due to fears of AI replacing its services, the stock has fallen 24% to close on Friday at $418.80, as you can see in this 10-year chart:
Bill thinks investor concerns are overblown, writing in his shareholder letter:
Though investors are concerned about disintermediation risk related to Capital IQ and other desktop offerings that are used to access both proprietary and non-proprietary data, these products represent a small percentage of profits. For example, Capital IQ, which has drawn a disproportionate amount of investor attention this year, represents less than 7% of total revenue and an even smaller percentage of total profits. On the other hand, over 40% of Market Intelligence revenue is driven via the sale of proprietary or curated data that are typically deeply embedded in customer workflows...
While AI may eventually exert price or volume pressure on a relatively small percentage of Market Intelligence revenues, we believe this will be offset by growing demand for high-quality proprietary and curated data... Given the critical importance of high-fidelity structured data for AI analysis, we believe the company should ultimately be able to offset any pressure in their desktop-based offerings through accelerated growth in its data business, especially given the company's preponderance of value-based (versus seat-based) enterprise contracts.
He concludes:
[The] stock's valuation declined from 25 to 19 times earnings per share, the lowest valuation in the previous five years, and a bargain level for a company that is often cited as one of the world's highest-quality businesses...
[We] believe investors have become myopically focused on potential threats to a single-digit portion of the company within Market Intelligence and have lost sight of the fact that future earnings growth will be almost exclusively determined by the company's benchmark businesses. These high-growth franchises should enable the company to meet its multi-year target for high-single-digit revenue growth even if Market Intelligence growth is below the 6% to 8% range set by management. Given S&P Global's robust capital return program that should reduce shares outstanding by 4% per annum, we believe earnings are likely to compound in the low-to-mid teens driving an annualized return in the mid-20s% if the company ultimately reapproaches a valuation that we view as appropriate for a business of this quality.
Intercontinental Exchange
Intercontinental Exchange is a leading global exchange operator founded in 2000. It provides financial data and infrastructure across credit and fixed-income markets.
Bill describes the company's financial picture as follows:
Its highly moated Exchanges segment generates nearly 70% of earnings, anchored by a crown-jewel energy franchise with revenues more than two-and-a-half times those of its next-largest competitor. Most of ICE's Exchanges revenue comes from its futures and options exchanges, which vertically integrate trading and clearing... This structure results in highly dominant positions in individual products, such as Brent crude futures, where ICE is the global benchmark with ~90% market share, driving enhanced pricing power, faster growth, and far higher margins than products cleared externally, such as equities. Over the last five years, Exchanges grew revenue 8% and profits 10% annually, with margins expanding to 75%...
ICE has delivered an 18% annualized return since its 2005 IPO and 15% annual EPS [earnings per share] growth since 2006, with EPS growing in each of the last nineteen years. Despite exceptional earnings growth and business momentum into 2026, ICE shares fell 21% in the year before our purchase as its multiple compressed from 25 times to 17 times earnings per share, near a record low.
Like S&P Global, Intercontinental's stock had an incredible run before being caught up in the "SaaSpocalypse." This triggered a 33% decline in the stock from its all-time high a year ago to its June 29 low.
It has recovered 27% since then to close on Friday at $154.73, as you can see in this chart dating back to the company's 2005 IPO:
Bill addresses the two concerns that caused the stock's sell-off. The first is the long-term impact of AI on its two smaller segments, Fixed Income and Data Services ("FIDS") and Mortgage Technology:
While small pieces of FIDS and Mortgage Technology are less differentiated, most subsegments should see growth continue or accelerate as AI proliferates. FIDS's largest units are also its highest-quality ones and include colocation services at ICE's specialized data centers, evaluated pricing on over three million fixed income instruments, and a fixed income index franchise with nearly $1 trillion of [exchange-traded fund] assets. We estimate the more competitive lines such as consolidated feeds and fixed income reference data drive only a single-digit percentage of segment revenue and a de minimis share of enterprise revenue.
Over the last several quarters, revenue growth across all three of ICE's data subsegments – one of which sells only proprietary data and sits within Exchanges – has consistently accelerated...
Regarding the second concern, the competitive threat of perpetual futures on the company's Exchanges segment, Bill writes:
More recent fears center on perpetual futures, or "perps," following regulatory approval of the first onshore contract, for Bitcoin, on May 29th. Introduced in their current form in 2016, perps have grown to dominate offshore crypto trading. Despite the name, a perp is most economically akin to a total return swap that never expires... Their retail appeal rests on 24/7 trading, the absence of a need to roll positions, and, perhaps above all, enormous, embedded leverage.
Public-policy questions around retail suitability aside, we are confident perps hold little if any appeal for institutional investors who drive over ~95% of ICE's trading volume. ICE's existing contracts offer orders of magnitude greater liquidity, far lower financing rates fixed upfront, and the ability to take physical delivery of a commodity and hedge specific geographic and temporal exposures, while effectively eliminating counterparty risk through the centralized clearinghouse model. The latter is a decisive risk management advantage over perps venues...
Bill believes these concerns won't impair Intercontinental's earnings power or intrinsic value, concluding:
We believe that a favorable macro backdrop and powerful secular tailwinds should enable ICE to achieve low-to-mid-teens earnings growth, which combined with a multiple re-rating toward year-ago levels as our thesis on the secular concerns is borne out, creates the potential for an annualized stock return in the mid-20s%...
In summary, in ICE we see a classic, simple, predictable, free-cash-flow-generative business that has sold off on concerns we view as unwarranted, a setup that has proven highly profitable for prior Pershing Square investments.
Long ago, my team and I at Stansberry's Investment Advisory recognized the mouthwatering economics of stock exchanges. We currently have open recommendations on two of them: London Stock Exchange Group (LSEGY) and CME Group (CME).
Only subscribers have access to these reports and the specific buy advice for the stocks, as well as our full archive and portfolio of recommendations. If you're not already a subscriber, you can become one by clicking here.
Alcon
Alcon is a Swiss-American pharmaceutical and medical-device company spun out of Novartis (NVS) in April 2019. It specializes in eye care, with a dominant position in the vision surgery market, and is the world's largest ophthalmology company.
Bill thinks Alcon is a fabulous business with many tailwinds:
It benefits from attractive long-term, mid-single-digit market growth supported by aging population demographics, rising global incomes, and improved access to healthcare.
Alcon is the premier franchise in this industry, benefiting from a massive global installed base, strong brand affinity, and unrivaled commercial capabilities. The core of Alcon's business is its dominant surgical vision franchise, supported by a 30,000-unit capital equipment installed base. This installed base anchors a highly attractive stream of high-margin recurring consumables revenue – a classic "razor/razor-blade" model – which in turn funds Alcon's ability to field the industry's largest sales, commercial, and research organizations, powering its innovation flywheel.
But the stock hasn't done much since its IPO, as you can see in this chart:
According to Bill, the stock's performance is due to a number of factors:
Underlying margin expansion and earnings growth have been tempered by foreign exchange headwinds, tariff absorption, and significant sales, research, and capital investments in support of new product launches...
Over the past year, Alcon's valuation multiple has compressed from a high-20s multiple of earnings to ~18 times due to a combination of sector weakness and company-specific factors...
Bill thinks Alcon can substantially expand its profit margin:
We believe Alcon's current 20% operating profit margin remains well below its structural potential and expect operating margins to rise to 25% or greater over the next several years, consistent with the company's longstanding commitments. Margin expansion will come from the continued optimization and leveraging of its fixed cost base, and further gross margin expansion in its contact lens business as it continues to season its manufacturing platforms.
He concludes:
We anticipate Alcon can generate meaningful compounded returns from current levels as it grows earnings at a mid-teens rate and its valuation multiple expands to a level more reflective of its underlying business quality and long-term growth prospects.
I think these are three excellent ideas, so I'll be taking a closer look at their historical financials and valuations in upcoming e-mails. Stay tuned...
(If you're particularly interested in one or more of them, please let me know in an e-mail by clicking here.)
2) I'm part of a half-dozen investment groups on WhatsApp and e-mail, all of which are filled with discussions about artificial intelligence ("AI"). Here's what I shared with them over the weekend:
As I read the back and forth on AI, over and over again I keep thinking: If you substitute the word "Internet" for "AI," it's the same as 1999/early 2000. AI, like the Internet, is a revolutionary, world-changing technology that some early adopters and companies are using to massively benefit.
But as the Internet bubble inflated, the spend far outpaced the demand, resulting in circular financing, terrible companies achieving absurd valuations, etc. – a classic bubble that burst, taking the lousy companies to ZERO and the great companies down 80%.
There's little doubt in my mind that we're in a similar AI bubble right now – but I'm much less certain how much further it will inflate and when exactly it will burst.
Are we in early 1999, when Internet stocks doubled over the next year before crashing? Or are we in early 2000, on the edge of the precipice? Time will tell...
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.