Legal tech is the only sub-industry in our U.S. Information Services coverage that is already seeing a top-line boost from GenAI investments. GenAI technology is an easy fit for legal research, in our view. Meanwhile, law firms are being forced to demonstrate to their customers that they are using technology to drive efficiency to win business.
We think long-term investments in GenAI will benefit sales and product innovation across our Information Services coverage, which should drive value creation. However, near-term monetization (in a material way) has been slow, while investments in the technology are pressuring margins and cash flow across a number of players.
While it’s a positive that companies are making investments into GenAI, they need to prove they can monetize the technology before getting any valuation benefit, in our view. Information Service’s customers (corporates) are eager to adopt GenAI tools for competitive reasons and cost savings, but the rollout-and-adoption process has been slower than investors initially expected. In addition, there’s some uncertainty as to whether GenAI products will be a sales accelerator across Information Services. We think there are several reasons for the slow monetization of GenAI tools across most of U.S. Information Services. First, like any new product innovation, our covered companies need to design products that customers want and need. This takes time. Information Services companies do not want their first or second GenAI products to disappoint customers (and investors). In addition, we think premium pricing, especially for larger customers, is slowing the sales cycle. While GenAI products are marketed to help improve efficiencies, there’s still a show-me aspect because they are new. Also, customers need to get comfortable with their internal data being kept safe and not leaking outside the company. Our coverage names are trusted partners, but they are not immune to this risk. We think financial services customers are especially sensitive to the risk, which could be a hurdle for the market data companies.
