- AI fears have pushed down valuations of financial data companies such as FactSet, Morningstar, and Gartner.
- Private equity firms are exploring deals but remain cautious due to uncertainty about AI’s long term impact.
- Stable subscription revenues remain strong, but growth is limited and future disruption risks are unclear.
- Companies that integrate AI and offer proprietary data may ultimately benefit rather than lose relevance.
The surge of artificial intelligence across industries is reshaping how investors value companies. For private equity firms that traditionally target stable, subscription-driven businesses, the rise of AI has introduced a new layer of uncertainty.
Financial data providers, once seen as reliable and predictable investments, are now being reassessed as investors question how AI might transform their business models.
Recent market movements illustrate this shift clearly. Shares of companies such as FactSet, Morningstar, and Gartner have dropped sharply over the past several months. While falling valuations usually attract buyout interest from private equity firms, this time the decline is prompting caution rather than enthusiasm.
Investors are wrestling with a difficult question. If AI can replicate parts of the research, analysis, and insights that these firms sell, how secure are their long term revenues?
Valuations Slide as AI Concerns Grow
FactSet, a major provider of financial data and analytics for institutional investors, has seen its stock fall around 39 percent in the last six months. That decline reportedly prompted private equity groups including Thoma Bravo and Hellman and Friedman to examine the company as a possible acquisition target.
However, the deeper they looked, the more complicated the decision became.
Morningstar and Gartner have experienced similar market pressure, with their shares dropping roughly 27.6 percent and 29.5 percent respectively since early September. The selloff accelerated after the release of Anthropic’s upgraded Claude Cowork AI tool, which reinforced concerns that advanced AI systems might eventually automate portions of financial research and advisory services.
The uncertainty has pushed valuations down across the sector. FactSet’s enterprise value to EBITDA ratio, a widely used metric for valuing companies, has fallen to around 12. Just a year ago it was close to 21, and in 2022 it reached roughly 30.
Morningstar and Gartner have also seen their valuation multiples shrink significantly, dropping from around 20 and 23 to roughly 12.6 and 14.8 today.
Ordinarily, this kind of compression would trigger aggressive buyout activity. But AI is changing the calculus.
Why Private Equity Is Pausing
Private equity firms typically favor companies with stable cash flows, strong margins, and predictable subscription revenue. Financial data companies have historically fit that profile perfectly.
The problem today is that no one is sure how durable those economics will be in a world powered by generative AI.
If AI tools can quickly analyze financial statements, summarize research reports, and generate investment insights, some investors worry that the core services offered by traditional data platforms could become easier to replicate. That possibility makes it difficult to estimate future earnings with confidence.
Without a clear view of the long term business model, valuation becomes guesswork.
Venture investor Jordan Jacobs summarized the challenge well when he noted that the pace of AI progress makes it extremely difficult to forecast what industries will look like several years from now. Technologies are evolving rapidly and opening new applications at a speed few expected.
For private equity firms that rely on detailed financial projections before committing billions to acquisitions, that unpredictability is a serious obstacle.
Strong Cash Flows but Limited Growth
FactSet’s latest financial results illustrate the tension facing investors.
The company continues to generate steady revenue growth. In its most recent quarter ending November 30, revenue increased by 6.9 percent year over year. Annual subscription value rose by 5.9 percent, indicating that customers are still renewing and expanding their contracts.
But much of that growth came from price increases rather than a surge in new customers.
For a leveraged buyout strategy, that matters. Private equity firms often depend on meaningful growth to justify the debt used in acquisitions. A business that generates reliable cash but limited expansion potential may not support the same level of leverage.
That dynamic makes buyers hesitant even when valuations appear attractive.
The Industry Faces a Turning Point
Despite the uncertainty, many analysts believe established data companies still have a path forward in the AI era.
Some businesses provide deeply embedded tools that integrate into financial workflows, making them harder to replace. Others possess decades of proprietary datasets that AI systems still rely on for training and analysis.
FactSet itself has begun exploring partnerships with AI developers. The company’s shares rose about 6 percent after it was named as a partner by Anthropic to help develop new technology tools. The collaboration suggests that data providers could become essential partners for AI companies rather than victims of disruption.
The broader software market may eventually split into two groups. On one side will be companies whose services can be easily automated. On the other will be businesses with proprietary data, strong integration into workflows, and defensible pricing power.
Those in the second category may ultimately benefit from AI rather than suffer because of it.
For now, however, uncertainty is dominating investor sentiment. Private equity firms that once rushed into stable software deals are stepping back, carefully evaluating which companies can thrive in an AI saturated future.
The next wave of acquisitions will likely depend on one critical factor. Investors must first decide whether AI will replace these services or amplify their value.
Follow TechBSB For More Updates
