MSCI Inc. (NYSE:MSCI) closed at $568.01 on October 12. The stock has returned 2.8% during the last six months, compared to a 21.2% return for the Insider Monkey Billionaire Index and 14.0% for State Street SPDR S&P 500 ETF Trust.
The most profitable thing MSCI sells is a list. MSCI decides which companies belong in which index, and trillions of dollars are managed against those decisions. A fund that measures itself against one of those indexes has to pay to use it, which turns an opinion about membership into a toll.
MSCI Inc. ranked 9th in our list of the 10 Best Fundamental Stocks to Invest in According to Billionaires. To see which stocks outranked it, click HERE.
Charging Rent on an Opinion:
The expensive part of an index is building it. Once it exists, letting one more fund track it costs MSCI almost nothing. The license fee is not almost nothing. That is a large part of why the company keeps 56.30% of its revenue as operating profit. Switching benchmark means telling your clients their fund is now being measured against a different yardstick, and very few managers will do that to save a license fee. That kind of pricing power is what defines the fundamentally strongest businesses billionaires back. The one at the top of that list has returned 16% since.
Much of the money arrives without a new sale being made. Clients pay by subscription and renew, and the fees tied to fund assets rise as markets rise. Revenue grew 12.20% in the most recent quarter.
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Shareholders Own Less Than Nothing:
Book value is negative $36.99 a share. MSCI has spent years buying back its own stock with borrowed money, handing shareholders more than the company is worth on paper and leaving $6.54 billion of debt where the equity used to be.
None of that is a problem while the license fees keep arriving, and all of it is a problem if they ever stop. There is little to fall back on, so the margin has to keep holding. The threat is price. The index funds that pay MSCI compete hard with each other on cost, and they push that pressure back up the chain. Betting against a franchise this profitable has rarely paid, which is roughly the thinking behind the handful of names Michael Burry is betting on. The one he holds most of is up 32% since.
The Valuation Case:
The stock trades at 24.69 times next year’s expected earnings, on analyst consensus estimates, and the usual backstop of comparing price to book value is not available here because book value is below zero. The verdict is that MSCI is expensive on most of the usual measures, and reasonable for what it actually owns, which is a standard rather than a product. You are paying a premium for a position almost nobody can attack, with nothing underneath it if the fees ever falter.
Conclusion:
A standard is harder to dislodge than a patent, because it is held in place by everyone who already uses it. That is what lets MSCI charge what it charges for something that costs it almost nothing to supply. However, the shareholders own less than nothing on paper, because the equity was handed back and replaced with borrowing. The fees that service that debt come from an industry competing hard on price. The margin is the only thing holding the structure up, which makes it the line to follow.
Market Sentiment:
MSCI Inc. was held by 67 hedge funds with a combined stake value of about $5.56 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 64 hedge fund holders with a cumulative investment value of around $4.38 billion in the previous quarter.
While we acknowledge the risk and potential of MSCI 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 MSCI and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
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