Equity Research
Rating: BUY | 12-M Price Target: $110 | Upside: +12% | Current Price: $98
Rating & Price target:
We think Nasdaq should trade higher over the next 12 months, which is why we're maintaining our Buy rating and $110 price target. That's about 12% higher than where shares trade Wednesday at $98, and is in line with the Wall Street average of $109.
For much of its history, Nasdaq was primarily thought of as a stock exchange. While that's still true -- companies list their shares there and buy and sell trades occur -- it's no longer where the majority of Nasdaq's profits come from. Today, Nasdaq's core business is selling data, software and compliance technology to banks and investors. You can think of this as recurring revenue since it's paid monthly or annually. This business accounts for more than half of Nasdaq's total revenues and is growing faster and with more certainty than its legacy market-pieces business. Add in the company's debt has been reduced quicker than expected following its massive 2023 Adenza acquisition, and its index-licensing business (fees collected when other companies build ETFs based on Nasdaq's indexes) surpassed $1 trillion of assets tied to its indexes for the first time ever. We believe the stock price has not yet fully accounted for how much stronger and predictable this business has become.
Company Overview and Business Segments
Nasdaq earns revenue in three primary businesses.
Capital Access Platforms. This includes fees paid by companies that list their stock on Nasdaq, the sale of market data, and licenses of its stock market indexes (such as the Nasdaq-100 index) to financial services firms that issue ETFs and other products. It also includes software used by companies to meet investor relations and ESG reporting requirements.
Financial Technology. This segment is Nasdaq's fastest-growing. It includes three products: Verafin (software used by banks to detect money laundering and financial fraud), AxiomSL (software used by banks to prepare reports they need to submit to regulators), and Capital Markets Technology (trading and treasury systems used by large financial institutions). Nasdaq purchased virtually all of this business in 2023 with its purchase of Adenza.
Market Services. This is Nasdaq's stock-exchange business. Revenue comes from the buying and selling of stocks, options, and other financial products on Nasdaq's exchanges, as well as fees generated from clearing those trades. Market Services revenue goes up and down with the stock market and trading volumes. As a result, it's less predictable than Nasdaq's other two businesses.
Nasdaq refers to Capital Access Platforms and Financial Technology together as "Solutions revenue." Solutions revenue now makes up about three- quarters of Nasdaq's total revenue, illustrating how Nasdaq has diversified beyond being simply an exchange. Nasdaq also reports a metric called Annualized Recurring Revenue, or ARR. This measures how much recurring, subscription-like revenue Nasdaq generates across all of its technology and data products. ARR hit $3.26 billion in the latest quarter. That was up 11% from the year-ago quarter.
Our view: In our opinion, this transformation into a company with more predictable, recurring revenue is the biggest reason to buy this stock. It will smooth out Nasdaq's earnings over time and could lead investors to assign a higher valuation to the stock (closer to the valuation multiples paid for other high-quality financial-data businesses). The one assumption we're least sure about: Can Nasdaq's Financial Technology revenue continue growing as quickly as it has over the past few years?
Recent Financial Performance
Zooming out to full-year 2026 guidance, management reiterated previous revenue guidance but lifted the top end of its adjusted EPS forecast to between $18.70 and $18.90. Comparably, Nasdaq raised its expense guidance for 2026 slightly, now expecting to incur $2.53 billion to $2.57 billion in operating expenses. This is largely attributed to higher incentive payments to employees tied to revenue and profitability beating expectations and higher spending on marketing services during what has been a busy year for IPOs.
A brief breakdown of 2Q 2026 results highlights where growth was derived. Under Capital Access Platforms, index licensing revenue increased 38% to $271 million, aided by launches of new ETF products from multiple providers based on Nasdaq indexes. Within Financial Technology, Verafin (fraud/money-laundering software) increased 21%, AxiomSL (regulatory reporting software) grew 15%, and Capital Markets Technology grew 15%. Market Services, which houses the company's trading business, grew a healthy 11% thanks to a behemoth, record-breaking listing (SpaceX went public on Nasdaq in an $86 billion deal).
Nasdaq's yearly net revenue increased from roughly $3.9 billion in 20 22 to approximately $5.2 billion in 20 25, and adjusted earnings per share has accelerated from trailing revenue growth in the last two quarters reported (21% to 27% year over year). This is a great sign the company is improving profit margins and not just growing top-line revenue.
Our view: We view this positively. Accelerating top-line recurring revenue growth despite scaling operations is typically difficult to achieve. Faster growth in profits compared to revenue is a good indicator that Nasdaq is scaling efficiently. Concerns would be if a decent amount of this growth is tied to a very robust equity market for new listings that will inevitably cool at some point.
Growth Drivers and Strategic Bets
Adenza integration. Nasdaq acquired Adenza earlier in 2023 to gain access to its AxiomSL and Calypso trading and treasury management software. The bank software is now being cross-sold to Nasdaq’s existing bank customers, and accounted for more than 15% of new Fintech revenues last quarter.
Verafin and artificial intelligence. Verafin has implemented AI “agents” that can automate portions of the workflow that were previously performed by human fraud and compliance analysts. The company has signed 47 new small-business customers and 11 new large enterprise customers already this year (more than doubled last year’s total), and its pooled fraud-detection database now encompasses $13 trillion of assets across banks clients, giving it a network-sized advantage that would be difficult for a new competitor to match.
Index licensing. The more money that flows into passive investments like index funds rather than active stock-picking, the more Nasdaq can profit from licensing its indexes to ETF providers. Assets invested in funds that use Nasdaq’s indexes surpassed $1 trillion for the first time.
IPO market strength. 2026 has seen a lot of companies go public, and Nasdaq has landed several high-profile listings. That boosts revenues today, but it’s likely to be a cyclical benefit that slows down when deal flow in the IPO market slows down.
Options and derivatives trading. Revenue from options trading related to Nasdaq’s indexes has grown more than doubled year-over-year for four consecutive quarters, and it just received regulatory approval to expand its menu of options products.
International expansion. Both AxiomSL and Calypso are winning deals in other countries at an increasing rate, including recent wins in Georgia and Africa. This suggests that the company’s RegTech story is no longer just a U.S.-centric story.
Competition. There are quite a few competitors to keep track of. Intercontinental Exchange (owner of the New York Stock Exchange) and CME Group are competitors on trading and clearing. S&P Global and MSCI are fierce competitors on index licensing (they own well-known indexes like the S&P 500). London Stock Exchange Group is also a competitor in data and analytics. And then there are smaller software providers like NICE Actimize and Fenergo that compete on price for fraud detection and compliance software, particularly among smaller banks.
Our view: Index revenue growth. We aren’t quite sure how much of Nasdaq’s rapid index revenue growth (38% in the latest quarter) is sustainable. Some of that growth was surely due to one-time contract restructuring.
Capital Allocation and Balance Sheet
Nasdaq produced $711 million in operating cash flow last quarter. $1.95 billion over the last 12 months when adjusted for non-recurring items. The company also doesn’t have to invest significant capital in real estate or equipment to run its business. Nasdaq spends about 3% to 4% of revenue on capital expenditures each quarter to maintain and grow the business. That’s perfectly fine for a technology and data company but well below what you’d expect from a traditional exchange.
Last quarter alone, Nasdaq paid $174 million in dividends to shareholders, spent $356 million on stock buybacks, and paid down $162 million of debt. All while simultaneously increasing its dividend payment year-over-year. The quarterly dividend is now $0.31 per share, versus $0.27 per share a year ago. That’s roughly a 1.3% dividend yield at today’s prices.
On the debt front, Nasdaq had approximately $8.8 billion in total debt and $520 million in cash as of the last quarter. Compared to annualized core profit (EBITDA) of roughly $3.2 billion. That puts Nasdaq’s current debt level at approximately 2.5 times profit. This is better than the 3.3 times target management had set for itself after the Adenza acquisition was completed. Put simply, Nasdaq has paid down debt quicker than it told investors it would.
CEO Adena Friedman and CFO Sarah Youngwood have worked to buy smaller, add-on businesses that expand Nasdaq’s capabilities (versus big distracting acquisitions). Plus they have divested portions of the business that didn’t fit into their strategy.
Our view: We think this rapid debt paydown is a clear positive and one of our higher conviction ideas as the company has outright stated it. Faster debt paydown gives Nasdaq flexibility either to buy back more stock, make new small acquisitions, or a combination of both without taking on a bunch of new debt to finance a large acquisition.
Competitive Benchmarking
Capital Market Signals
Big institutions and pension funds own 60% of Nasdaq. This is typical of large, mature financial companies. Wall Street analysts are overwhelmingly bullish on Nasdaq right now. Seven of eight of the latest ratings are bullish, with one rating being neutral. There are no recent bearish ratings. Average price targets are clustered near our price target.
None of the recent insider trades have been especially noteworthy. CEO Adena Friedman sold shares recently but the amount was small and is likely due to tax related reasons or routine diversification by the CEO. There have been no insider trades that suggest leaders are worried about the company's prospects.
Our view: While we like the strong analyst optimism surrounding Nasdaq, the lack of cautionary notes from analysts means expectations are likely pretty high. This could limit how much or how quickly the stock could rise from current levels.
Conclusion
We have a Buy rating and $110 price target on Nasdaq, which is about 12% above current levels. Including dividends, which are small, we're looking at total expected returns of around 13%. Think of Nasdaq as a long-term, slow-grower to gain exposure to the financial data, compliance tech and index products markets rather than a play on stock volume or sexy IPOs.