VeriSign Controls the Internet's Address Book, But AI Disruption and a Key Contract Renewal Loom Large

VeriSign (NASDAQ: VRSN) runs the plumbing of the modern internet, ensuring user requests reach the right destination reliably. Thanks to its exclusive regulatory agreements, the company operates the core registry infrastructure for all .com and .net domains, a monopoly position that comes with pricing power and nearly zero marginal costs.

This is a capital-light tollbooth that collected $1.1 billion in free cash flow on just $1.7 billion in revenue last year. Yet, for a business of this quality, the stock has been stuck in neutral, underperforming the broader market by around 30% over the past year.

The fundamentals of the business remain as strong as ever, but the adoption of artificial intelligence (AI) chatbots has changed how users navigate the internet, and the upcoming renewal of its core contract creates an overhang for the stock.

Image source: Getty images.

Growth today, disruption tomorrow?

For now, the adoption of AI has been a net positive for VeriSign. Management reports that new AI-powered tools are lowering the barrier to creating websites, helping drive a rebound in registration growth after a period of stagnation.

The domain base grew 3.7% year over year in the first quarter of 2026, and Domain Name System (DNS) traffic on its network has roughly tripled over the past three years. But this near-term tailwind is just the initial stage of a much larger transformation.

The risk is that AI eventually changes how people use the internet, potentially reducing the value of a web address.

If we increasingly interact with AI agents that browse and transact on our behalf, the .com address could become less relevant. Management's counterargument is that these agents will still need a trusted, stable identifier to verify content.

A regulatory moat intact, though the terms remain up for debate

Compounding the AI uncertainty is the renewal of VeriSign's .net and .com contracts with internet regulators, which expire in 2029 and 2030, respectively. While the company has a presumptive right of renewal and has successfully navigated this process for decades, there are risks, particularly around pricing.

The company has long been seen as a "utility-like" tech company, but long-term investors will eventually begin to weigh the risk associated with its regulatory moat, especially as critical renewals approach. The marginal buyer of the stock, who is needed to push the stock higher, may stay on the sidelines until there is more clarity.

For a company with mid-single-digit revenue growth, the stock is not cheap. At around 27 times forward earnings, the likelihood of a favorable outcome in which the monopoly remains intact is already being priced in.

The result is a high-quality company with clouds lingering overhead. We should have a much better grasp of AI's impact on the web well before its key agreements expire.

For now, it's a great business to admire, but a tough stock to buy.

Bryan White has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends VeriSign. The Motley Fool has a disclosure policy.