MSGE's Russell Exclusion Creates a Rare Contrarian Opportunity in AI-Energy Infrastructure

The exclusion of Madison Square Garden Entertainment Corp (NYSE: MSGE) from the Russell 3000E Value Index in 2025 has sparked confusion among investors, but beneath the noise lies a compelling contrarian opportunity. With the company's valuation now detached from passive index flows, MSGE presents a rare chance to buy a small-cap entertainment giant at a discount—just as its core business aligns with two unstoppable trends: the recovery of live events and the soaring energy demands of AI infrastructure.

Why the Russell Exclusion Matters (and Doesn't)

First, the exclusion itself. While the Russell 3000E Value Index drop may have caused a temporary dip in MSGE's stock price, it's critical to note that indexing isn't destiny. Small-cap companies often cycle in and out of indices as their valuations shift, and MSGE's $1.89 billion market cap (as of June 2025) still positions it as a mid-tier player in the live entertainment sector. Crucially, the exclusion removes it from passive fund flows, creating a vacuum that active investors can exploit.

The AI-Energy Infrastructure Tailwind

The real catalyst? AI's insatiable appetite for energy infrastructure is reshaping the economy—and MSGE sits at the crossroads. Here's why:
1. Data Centers Need Live Spaces Too: The $500 billion AI infrastructure boom (led by Microsoft, OpenAI, and others) isn't just about servers. It's also driving demand for energy-efficient venues. MSGE's portfolio of iconic venues—including Madison Square Garden, Hulu Theater, and Radio City—could become hubs for hybrid events that blend physical presence with AI-driven experiences.
2. Green Energy Plays: Data centers are increasingly reliant on nuclear and renewable energy, and MSGE's venues are ideally located near major tech hubs (e.g., NYC, LA). This proximity to clean energy grids positions it to capitalize on corporate ESG goals.
3. Undervalued, Yet Cash-Flow Positive: Despite its small-cap status, MSGE generated $393 million in revenue during Q3 2025 (up 12% year-over-year) and repurchased shares aggressively. Its enterprise value of $3.04 billion reflects a valuation discount relative to peers like Live Nation, even as its cash flow stabilizes.

The Ariel Fund's Contrarian Stamp of Approval

The Ariel Fund, known for its value-oriented, contrarian approach, holds MSGE as a top position—a signal that shouldn't be ignored. The fund's Q4 2024 report highlighted MSGE's “misunderstood” valuation and its potential to rebound as live entertainment demand surges. With the Russell 2000® Value Index now its benchmark, the fund's focus on small-cap undervaluation aligns perfectly with MSGE's current status.

Risks and the Case for Urgency

The risks? Market skepticism around small-caps remains. The Russell 2500 Value's shift to the Russell 2000® Value Index in 2025 reflects a broader trend of investors favoring smaller, more “pure-play” value stocks. But here's the rub: MSGE's exclusion creates a “buyers' strike” moment. Passive money is gone, and active investors are now the only game in town. With AI energy infrastructure spending set to double by 2028—and live events still recovering—the clock is ticking for MSGE to climb back into the spotlight.

Buy Now Before the Lights Come On

The math is clear: At $39.90 per share, MSGE trades at just 12.4x trailing EBITDA—a discount to its 5-year average. Meanwhile, its enterprise value-to-EBITDA multiple of 7.7x suggests ample room for expansion as AI-driven demand fuels higher ticket sales and sponsorships.

Investment Thesis:
- Buy: For a 12-month target of $52–$55, reflecting a 20x EBITDA multiple.
- Hold: If you're content with steady small-cap growth.
- Avoid: Only if you believe AI's energy demands won't reshape live entertainment—a bet I'd call reckless.

The takeaway? MSGE's exclusion from the Russell is a distraction. The real story is its undervalued exposure to two megatrends: the live event renaissance and the AI energy revolution. Investors who act now could be sitting in the front row when the market finally recognizes its worth.