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Industry Description
The Zacks Investment Bank industry consists of firms that provide financial products and services, including advisory-based financial transactions to corporations, governments and financial institutions worldwide. These started as partnership firms focused on initial public offerings (IPOs), secondary equity offerings, brokerage and mergers and acquisitions (M&As). Gradually, the companies have evolved into providers of various other services, including securities research, proprietary trading and investment management. Therefore, industry players work mainly through three product segments — investment banking (M&As, advisory services and securities underwriting), asset management and trading and principal investments (proprietary and brokerage trading).
3 Themes to Drive the Investment Bank Industry
Underwriting and Advisory Businesses Regain Momentum: After a prolonged slump in underwriting, IPOs and deal-making activity since 2022 due to geopolitical tensions and global macroeconomic uncertainty, advisory and underwriting businesses have rebounded. This year started on an optimistic note, fueled by expectations of a strong investment banking rebound under a business-friendly Trump administration, with potential tax cuts and deregulation on the horizon.
Nonetheless, early optimism about a sharp M&A recovery was tempered in April, as renewed tariff concerns and fears of a trade war triggered heightened market volatility. Since then, the operating environment has improved, supported by greater clarity on trade policy direction. Further, the Federal Reserve initiated the rate cut cycle as the labor market continued to show signs of weakness amid rising inflation. Thus, the evolving macro backdrop is setting the stage for sustained top-line growth for investment banks.
Trading Business to Remain Solid: Client activity in the trading business largely depends on the prevalent macroeconomic and geopolitical conditions. Since 2022, market volatility has increased significantly, largely due to several geopolitical and macroeconomic challenges. Further, President Donald Trump’s tariff plans have upended the near-term normalization of trading business. Market volatility and client activities have soared, and the trading desks will likely continue to witness a flurry of activity. Hence, investment banks are expected to record solid trading income in the upcoming period.
Technology to Improve Operating Efficiency: Innovative trading platforms, the use of AI and investments in technology and advertising will likely aid the operations of investment banks. Industry players are attracting and retaining the best talent for building a leadership team and spending heavily on technology to support clients with infrastructure development and new platforms. While industry players are likely to face increasing technology-related expenses in the near term, these initiatives are expected to improve operating efficiency over time.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Bank industry is a 21-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #22, which places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a robust earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since April 2025-end, the industry’s earnings estimates for the current year have been revised 4% upward.
Before we present a few stocks that you may want to buy, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Investment Bank industry has outperformed its sector and the S&P 500 over the past year. While stocks in the industry have collectively soared 51.3%, the S&P 500 composite has rallied 18.4% and the Zacks Finance sector has risen 17.9%.
One-Year Price Performance
Industry Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), commonly used for valuing investment banks because of significant variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 3.06X, above the median level of 2.15X, over the past five years. The industry is trading at a considerable discount compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 13.58X and the median level is 13.82X.
Price-to-Tangible Book Ratio (TTM)
Finance stocks typically have a lower P/TBV ratio, so comparing investment banks with the S&P 500 may not make sense to many investors. However, comparing the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV of 5.72X and the median level of 4.71X for the same period are above the Zacks Investment Bank industry’s respective ratios.
Price-to-Tangible Book Ratio (TTM)
3 Investment Banks to Invest in
Morgan Stanley: This Zacks Rank #2 (Buy) stock operates globally as an investment banking, securities and investment management company. Based in New York, the key source of Morgan Stanley’s earnings stability is its business diversification initiatives. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Morgan Stanley is taking steps to boost stable revenue, shifting from reliance on capital markets. Acquisitions of Eaton Vance, E*Trade, and Shareworks support this strategy. In 2023, the company and Mitsubishi UFJ Financial Group deepened their 15-year alliance by merging parts of their Japanese brokerage operations. The move combines equity research, sales and execution services for institutional clients and reorganizes equity underwriting, strengthening Morgan Stanley’s foothold in Japan.
A favorable macroeconomic backdrop is expected to support the company’s IB business, further strengthening its top line. The demand for both advisory and underwriting businesses is likely to rise as corporates become more comfortable with the current economic backdrop.
With a market cap of $255.3 billion, MS is expected to continue benefiting from its scale and business expansion efforts. Its shares have jumped 29.3% in the past six months. The Zacks Consensus Estimate for 2025 earnings implies year-over-year growth of 11.6%.
Price and Consensus: MS
Evercore: It is a premier global independent investment banking advisory firm. This Zacks Rank #1 company, based in New York, operates from its offices and affiliates in the Americas, Europe, the Middle East and Asia.
EVR generates the majority of revenues from the IB business. After subdued activity in 2022 and 2023, global M&A markets improved in 2024, and both deal value and volume rose. Further, this year started with optimism, although sentiment briefly cooled following the implementation of Trump’s tariff policies. However, momentum has since rebounded, with transaction activity picking up once again. Evercore’s initiatives to expand its client base in advisory services, diversify revenue streams and extend its geographic reach are expected to support continued revenue growth.
Though steadily rising operating expenses and negligible revenue generation from the wealth management business are worrisome, Evercore maintains a solid balance sheet and liquidity position. Also, the company consistently enhances shareholders’ value with steady capital deployment activities.
EVR has a market cap of $13.7 billion. In the past six months, shares of the company have soared 63.4%. The Zacks Consensus Estimate for the current-year earnings implies a 34.5% year-over-year increase.
Price and Consensus: EVR
Moelis & Company: New York-based Moelis & Company is a global investment bank. This Zacks Rank #1 company provides strategic and financial advisory services to corporations, governments and financial sponsors across all major industries.
Moelis & Company has been demonstrating robust organic performance. Despite revenue declines in the past few years due to cyclical softness in M&A completions, the company’s efforts to boost its geographical footprint and capital markets business will likely support revenues in the quarters ahead. Also, higher average fees per deal and an ongoing surge in global restructuring activity, as highly leveraged companies adapt to a changing rate environment, are likely to drive the company’s top line.
MC has diversified its business operations across a broad range of sectors and regions. Also, it doesn’t have substantial client concentration, with the top 10 transactions accounting for less than 25% of total revenues. Its collaborations in Japan and Mexico, as well as its non-controlling stake in Moelis Australia Limited, offer significant support to the financials.
With a market cap of $6.1 billion, MC is expected to continue benefiting from its business expansion efforts. Its shares have gained 20.4% over the past six months. The Zacks Consensus Estimate for 2025 earnings indicates a year-over-year jump of 37.9%.
Price and Consensus: MC
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This article originally published on Zacks Investment Research (zacks.com).
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