Morgan Stanley, a global investment bank, has raised its 2026 and 2027 earnings estimates for Nasdaq, the exchange operator, after the company reported a stronger-than-expected quarter. The bank highlighted several growth drivers, including artificial intelligence, tokenization, and a planned expansion of US equities trading to 23 hours a day, five days a week later this year.
Nasdaq is more than just a stock exchange. It also sells market-technology and data products that generate steady, subscription-like revenue. In a research note, Morgan Stanley said this mix is improving, with momentum at Verafin, Nasdaq's financial-crime software unit, rising demand for indexes and exchange-traded funds tied to them, and a gradually healthier IPO backdrop.
What's Driving the Optimism?
Morgan Stanley's analysts pointed to three key areas that could keep Nasdaq's growth steady. First, AI is being integrated into Nasdaq's trading and surveillance systems, potentially boosting efficiency and attracting more clients. Second, tokenization—the process of converting assets into digital tokens on a blockchain—is gaining traction in financial markets, and Nasdaq is positioning itself as a key player in this space. Third, the planned 23/5 equities rollout, which would allow trading nearly around the clock, could increase transaction volumes and revenue.
The bank also noted that Verafin, which helps banks detect money laundering and fraud, is seeing strong demand. This software business provides recurring revenue, making Nasdaq less dependent on volatile trading volumes. Additionally, the company's index business is benefiting from the growth of ETFs, which often track Nasdaq indexes.
Broader Market Context
Nasdaq's positive outlook comes amid a mixed global economic picture. While some regions are showing signs of recovery, others face headwinds. For example, Germany's PMI returned to growth in July, and Japan's factory growth held strong, but energy costs and geopolitical risks remain concerns. In the US, the IPO market is slowly improving, which could benefit Nasdaq as a listing venue.
Morgan Stanley has also been active in other sectors recently. The bank raised its price target for CME Group on new futures products and saw a brighter cycle for Texas Instruments, though it remained underweight on that stock. These moves show the bank's focus on companies with strong technology and data offerings.
What It Means for Investors
For everyday investors, Morgan Stanley's upgrade suggests that Nasdaq's business is becoming more diversified and resilient. The exchange's shift toward technology and data services means it is less reliant on the ups and downs of trading volumes. This could make it a more stable long-term holding, especially as AI and tokenization open up new revenue streams.
However, investors should keep in mind that the 23/5 trading plan is still pending regulatory approval and could face delays. Similarly, the IPO market's recovery is gradual, not guaranteed. As with any stock, it's important to consider the risks, including competition from other exchanges and potential regulatory changes.
Overall, Morgan Stanley's raised forecasts are a vote of confidence in Nasdaq's strategy. The company is betting on technology to drive growth, and so far, the results are encouraging.
