Baron Partners Fund on Morningstar, Inc.
Thesis
Morningstar's share price has been pressured by fears that generative AI will disrupt financial research and data services. Baron instead views Morningstar's trusted, structured and auditable datasets as increasingly important inputs for AI-enabled financial workflows. The underlying business continued to perform, with organic revenue rising 8% and adjusted EBIT increasing 18% over the preceding twelve months. Management has also accelerated capital returns, repurchasing $300 million of shares in the latest quarter and $1.1 billion since 2024. With the stock trading at a large discount to its historical multiple, the fund believes investors are being compensated for the perceived AI risk.
“We continue to view Morningstar as a collection of high-quality, hard-to-replicate data businesses.”
Key risks
- Generative AI may disrupt portions of Morningstar's research business
- Valuation multiples could remain structurally below historical levels
- Organic growth could slow