Moody's Q4 2025 Earnings Call Reinforces High Valuation Amid Cyclical and AI Risks

What happened

Moody's held its Q4 2025 earnings call, likely detailing continued financial performance but facing investor skepticism over its rich valuation multiples. The company has shown robust growth, with 2024 revenue up 20% to $7.09bn and EPS rising 29%, driven by strong margins in its ratings (MIS) and analytics (MA) segments. For the first nine months of 2025, revenue grew 8% year-over-year to $5.83bn, with MIS up 11% and MA up 9%, though free cash flow dipped slightly due to higher payments. However, the stock trades at about 41x P/E and 29x EV/EBITDA, approximately 171% above a conservative DCF estimate, implying the market is pricing in sustained high growth and moat durability. Management probably emphasized strategic AI investments and restructuring efforts, but critical analysis must look past this optimism to the cyclical issuance risks, regulatory overhangs, and competitive threats from AI-native platforms.

Implication

The high valuation leaves minimal margin of safety, meaning any downturn in bond issuance or slower MA growth could quickly compress earnings and the multiple. Cyclical sensitivity in the ratings business, evidenced by the 2022 revenue slump, poses a recurring risk that isn't fully discounted at current prices. Regulatory pressures, including ongoing SEC scrutiny and past legal settlements, could undermine the oligopoly moat and increase compliance costs. Technological disruption from AI-driven credit models threatens to erode Moody's analytics and ratings pricing power over the medium term. Therefore, while the franchise remains cash-generative, new capital should be patient, and existing holders might benefit from discipline or partial profit-taking until more attractive entry points emerge.

Thesis delta

The earnings call does not alter the core investment thesis; it reinforces the 'POTENTIAL SELL' stance from the master report by highlighting that strong operational results are already priced in. Any shift would require evidence of MIS resilience through a cyclical downturn or accelerated MA de-risking, neither of which is indicated here. Investors should maintain a critical view, focusing on issuance trends and competitive signals rather than management's optimistic narratives.