Nasdaq now makes most of its money selling software, not running a stock exchange

For most of its history Nasdaq was understood as a stock exchange — the venue where technology companies list and their shares change hands. That description now captures a minority of what the company does. As of its most recent disclosures, the majority of Nasdaq’s revenue comes from selling software and data services to other financial institutions rather than from operating markets.

The pivot was years in the making but was cemented by the 2023 acquisition of Adenza, a combination of the Calypso trading-and-risk platform and the AxiomSL regulatory-reporting business, for roughly $10.5 billion in cash and stock. The deal was expensive and initially unpopular with some shareholders, who questioned paying a steep multiple and taking on debt to buy into software. Two years on, it has reoriented how the company reports itself: Nasdaq is now organized around three divisions — Capital Access Platforms, Financial Technology and Market Services — and management frames the first two, collectively its “solutions” businesses, as the growth engine.

The strategic appeal is the revenue quality. Exchange trading revenue is transactional and cyclical, rising and falling with volumes and volatility that Nasdaq does not control. Regulatory-reporting software, financial-crime detection and index licensing are subscription and recurring-revenue businesses, which investors reward with higher and steadier valuations. The company reports its annualized recurring revenue across these units growing at a high-single-digit pace, a profile that looks more like enterprise software than market infrastructure.

Anti-financial-crime has become the most visible piece of that story. Through Verafin, acquired in 2021, Nasdaq sells fraud-detection and anti-money-laundering software to banks — disproportionately smaller and mid-sized institutions that lack the budget to build surveillance systems in house. It is a large and growing compliance market driven by regulatory pressure rather than market cycles, and it puts Nasdaq in competition less with rival exchanges than with financial-technology and enterprise-software vendors.

That repositioning is not without friction. Selling mission-critical software to banks is a different discipline from running a matching engine: it means longer sales cycles, implementation risk, customer-support obligations and competition against entrenched incumbents in each category. The Adenza debt also constrained buyback capacity while the company paid it down, a trade-off management accepted in exchange for the recurring-revenue mix.

For the broader market-infrastructure sector, Nasdaq is the clearest example of a wider move. Intercontinental Exchange built a mortgage-technology business, London Stock Exchange Group reinvented itself around data after buying Refinitiv, and Deutsche Börse has pushed into software and analytics. The common thesis is that owning the exchange is less valuable than owning the data, compliance and workflow software that every participant has to run regardless of whether volumes are up or down that quarter.