Intercontinental Exchange, Inc. (NYSE:ICE) operates exchanges, sells financial data, and supplies software that helps lenders originate, close, and service mortgages. Trading fees respond to market activity, while subscriptions and servicing contracts provide more dependable revenue. The company also appears in Insider Monkey’s 10 Best Non-Tech Stocks to Buy According to Analysts.
The mortgage business tests how much investors should pay for that combination. Higher borrowing costs discourage homeowners from replacing cheaper existing loans, limiting refinancing fees. Those loans still need servicing. The investment question is whether software used throughout their lives can earn attractive returns without a housing boom.
Embedded Software Must Turn Retention Into Growth
Intercontinental Exchange, Inc. benefits from systems embedded in lenders’ daily operations. Replacing servicing software involves migrating borrower records, retraining employees, and protecting payment accuracy. That disruption discourages switching and gives the company opportunities to sell additional automation.
The financial benefit comes when recurring software adoption spreads delivery costs across more revenue. Development, security, and customer support still require spending. Customers need measurable processing savings before expanding their purchases, and rival products can compete for that additional spending.
Mortgage revenue grew 6% in the first quarter and 5% in the second. Second-quarter recurring revenue rose 3%, against 11% for transactions, while servicing software grew 2%. New implementations, contractual pricing and expanded renewals helped servicing, but customer mergers reduced loan counts. Switching costs protect the base; broader adoption must produce the profit growth needed for a higher valuation.
The Lower Multiple Requires Durable Earnings
Intercontinental Exchange, Inc. looks fairly valued at approximately 18x forward P/E, compared with 22x trailing P/E. Trailing P/E uses historical earnings, while forward P/E uses forecasts. Profitable exchanges and data services support that valuation, while mortgage subscription growth and acquisition financing set the hurdle for a higher multiple.
Analysts expect 2026 adjusted EPS of $8.17, up approximately 18%. Growth extends beyond mortgages. First-quarter exchange revenue increased 30%, and fixed-income and data revenue grew 10%. More transactions spread platform costs across additional revenue, while subscriptions support earnings between bursts of trading activity.
Reported earnings also include investment gains and amortization of acquired intangible assets, which push profits in opposite directions. Company-reported adjusted EPS excludes both, alongside other items. Investors therefore need to separate stronger trading and software earnings from changes in investment values and acquisition accounting.
Intercontinental Exchange, Inc. illustrates the distinction through its mortgage segment’s second-quarter 8% GAAP operating margin and 43% adjusted margin. The adjustment removed $184 million of acquisition amortization and $10 million of transaction and integration costs. Amortization requires no fresh quarterly payment, but the 2020 mortgage-software acquisition alone cost $11 billion. That capital must earn a return.
The relevant test is whether durable software relationships produce cash for shareholders after ongoing development and financing costs. Expanding adjusted profit matters most when cash remaining after those obligations grows too.
The Earlier Multiple Came With a Different Mortgage Outlook
The 18x forward P/E for Intercontinental Exchange, Inc. compares with approximately 22x at year-end 2025. Its recurring mortgage growth has improved from 1% during 2025 to 3% in the latest quarter, but the business remains far from rapid subscription expansion.
The housing backdrop also changed. Late-2025 rate declines expanded the pool of homeowners who could benefit from refinancing. The October 2026 mortgage report instead described rising fixed rates and greater interest in adjustable-rate loans. That reduces confidence in transaction-led growth continuing, even as the existing servicing book supports recurring fees.
Analysts expect adjusted EPS growth to moderate to approximately 9% in 2027. A lower multiple therefore accompanies both stronger near-term earnings and a slower subsequent growth outlook. Restoring the earlier valuation would require sustained software adoption and cash growth through ordinary mortgage conditions.
Intercontinental Exchange, Inc. also faces a financing commitment absent from the year-end comparison. June debt of $19.8 billion predates the agreement to acquire MarketAxess Holdings Inc. (NASDAQ:MKTX) for approximately $6 billion in equity value, financed with new borrowing. Completion is expected in the first half of 2027, subject to shareholder and regulatory approvals.
Management expects the acquisition to increase adjusted EPS in the first full year after closing and deliver $100 million of annual expense savings within three years. Those benefits arrive over time, while debt adds financing costs. The valuation depends on how much acquisition benefit survives borrowing and integration costs.
The Closest Peer Offers Faster Software Growth
An 18x forward P/E for Intercontinental Exchange, Inc. compares with approximately 24x for Nasdaq, Inc. (NASDAQ:NDAQ). The latter is the closest operating comparison because both combine exchanges, financial data, and workflow software.
Analysts expect approximately 18% adjusted EPS growth for both in 2026, followed by about 13% for Nasdaq, Inc. in 2027 against 9% for its counterpart. A premium is supported by stronger subsequent growth expectations and clearer momentum in software demand: the peer’s second-quarter Financial Technology revenue increased 15% organically.
Intercontinental Exchange, Inc. has substantial earning power. Its second-quarter group operating margin was 52% under GAAP and 61% adjusted, compared with 47% and 57%, respectively, for Nasdaq, Inc.. These group figures show why mortgage weakness should not determine the entire valuation.
Cash generation reinforces the case for the lower multiple. First-half operating cash flow of $3.3 billion became $2.6 billion of adjusted free cash flow after capital expenditure, capitalized software development, and regulatory-fee timing adjustments. Nasdaq, Inc. reported approximately $1.1 billion of first-half free cash flow after capital expenditure and regulatory-fee adjustments.
Cash remaining after investment gives both companies room to reinvest and service borrowing. Financing flexibility differs: the peer reported 2.6x gross leverage at June, while the pending acquisition assumes 3.4x for the combined buyer and target. A lower multiple is justified by those prospective debt demands and weaker mortgage subscription momentum, despite strong group margins.
Conclusion
At 18x forward earnings, Intercontinental Exchange, Inc. looks fairly valued, supported by profitable exchanges and embedded software relationships. Sustaining that judgment requires strong group margins and more recurring mortgage cash after development and financing costs. Stronger refinancing volumes would help earnings, but broader adoption must carry the acquisition return through quieter markets. Rising transaction revenue without better recurring cash would weaken the case.
While we acknowledge the risk and potential of ICE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ICE and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: BlackLine (BL) Acquires NetNow. Can Better Credit Decisions Drive Growth? and Intuit (INTU) Knows Its Customers’ Books. Should it also be their Lender?
This article is originally published at Insider Monkey.
Hedge Fund Resource Center