Nasdaq, Inc. NDAQ

Key data

The business

Nasdaq still owns the exchange the name conjures, the ticker board in Times Square and the listings of Apple and Microsoft. That business is now the smaller story. Two acquisitions rebuilt the company: Verafin in 2021, software banks use to spot money laundering and fraud, and Adenza in 2023 for about $10.5B, which bundles Axiom regulatory reporting and Calypso risk software sold to banks on multi-year subscriptions. Nasdaq now reports in three parts. Capital Access Platforms holds listings, the index franchise behind the funds that track it, and data. Financial Technology holds Verafin, Axiom and Calypso, the anti-crime and regulatory software. Market Services is the old engine, matching buyers and sellers in stocks and options and keeping a slice of the flow. The moat differs by part: the index and listings franchises are near-impossible to dislodge once a fund or a company sits on them, while the software rests on switching cost, a bank that wires Axiom into its regulatory filings does not rip it out lightly. What the customer actually holds is a renewal invoice.

The numbers

The shape to watch is the wedge between what the exchanges match and what the software renews.

Q2 2026 was the biggest quarter the company has printed, $2.53B, up 21% on the year. Read one line down and the story cools: operating income rose 25%, but net income grew only 12% and diluted EPS slipped to $0.89 from Q1's $0.91. The gap is below the operating line, heavier interest on the Adenza debt and a higher tax take, not weaker operations. The top line also flatters, because it carries pass-through transaction costs that net to nothing, so the 25% operating-income growth reads truer than the 21% revenue figure. On the adjusted basis management reports, Q2 came in at $1.07 against a $0.98 estimate, the fourth straight beat.

Across five years revenue compounded about 9% a year, from $5.9B in 2021 to $8.3B in 2025. EPS tells a bumpier tale: it fell from $2.35 in 2021 to $1.93 in 2024 as Adenza's shares and interest diluted the count, then snapped back to $3.09 in 2025 as integration costs rolled off. Half of 2026 is already $1.80, a run-rate above last year. Annualized recurring revenue, the metric management leans on, is shown only as a chart with no companion data table, so no ARR figure is stated here. What this memo believes that the tape may not: the operating leverage is real, showing at 25% at the operating line, and the print that settles it is whether net income growth catches up as debt paydown lowers interest.

Operating leverage is the market-structure tell, and Q2 shows both it and where it leaks.

Management

CEO Adena Friedman sold about $58M of stock in two roughly equal sales in January and February 2026, plan status not disclosed in the filings available, so read it as neither clearly routine nor clearly a signal. Against that, Investor AB, the Wallenberg holding company and a long-standing anchor holder, bought $15.8M in February, the kind of buyer that adds for decades, not quarters. Capital return is turning up: buybacks ran $548M in the first quarter of 2026 alone, near the $616M spent in all of 2025, while long-term debt has been walked down from $8.9B to $8.5B since early 2025. The pay-versus-record read is clean enough, four straight quarters ahead of estimates.

How it fails or surprises you

Volatility normalizes. Market Services rode elevated options volume in Q2, industry equity-option daily volume ran 66.5M contracts against 52.5M a year earlier, and Nasdaq PHLX share climbed to 11.2% from 9.6%. A calm year pulls both back. If option and equity volumes revert to 2025 levels, the transaction line that pads recent quarters thins, and the software growth has to carry the whole result alone.

The software compounds faster (right tail). Verafin and the Adenza suite sell into thousands of banks that already touch Nasdaq elsewhere. If anti-financial-crime and regulatory-reporting subscriptions reaccelerate, recurring revenue re-rates the whole company toward a software multiple, not an exchange one. The market pays for an exchange today. The first tell is recurring growth stepping back above the mid-teens on the next ARR chart.

Net income does not catch operating income. Q2 shows the risk: operating income grew 25% while net income grew 12% and EPS slipped. If that wedge is structural, rising interest and tax rather than transitory, the leverage never reaches shareholders and 28 times earnings is too rich. Interest coverage sits at 10.5x, comfortable, but the gap is the thing to disprove.

Closing thoughts

The evidence points to a business already priced for quality, not a mispriced one. At 28 times earnings and 18.4 times cash operating profit, mid its own twelve-year range and above the roughly 14 times rivals fetch, the market has noticed the software transition and is paying for it. The edge, if there is one, is narrow and sits in operating leverage converting to net income as Adenza debt runs off, which the buyer on the other side discounts because they have watched the net-income line lag for two quarters. The fatter tail is modestly to the upside, the recurring mix genuinely reduces the earnings swing that has always capped exchange multiples, but the left tail, a volatility drought plus a stubborn net-income wedge, is real and would strand the multiple.

The bet is still that Nasdaq keeps becoming a software company banks pay every year, and that those subscriptions grow faster than the up-and-down exchange business. What breaks it is simpler than the story: watch net income growth against operating income growth. Two more quarters where operating income compounds in the mid-20s and net income trails in the low teens, and the leverage is not reaching the owner, whatever the ARR chart shows.