3 Investment Banks Poised to Defy Industry's Tariff Tensions

The Zacks Investment Bank industry is set to benefit from solid trading income driven by heightened market volatility and client activity amid geopolitical and macroeconomic uncertainty. Investments in artificial intelligence (AI) and technology are expected to boost long-term efficiency despite short-term cost pressures. 

However, underwriting and advisory businesses face headwinds due to persistent economic ambiguity due to the tariff war, failed mergers and acquisitions (M&As) rebound and stalled pro-business policies. This may limit overall revenue growth. Despite these challenges, industry players like Interactive Brokers Group, Inc. IBKR, Robinhood Markets, Inc. HOOD and BGC Group, Inc. BGC are worth betting on.

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, the 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 Major Themes to Influence the Investment Bank Industry

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 significantly increased because of several geopolitical and macroeconomic challenges. Further, the hefty tariffs unveiled by President Donald Trump have upended the near-term normalization of trading business. The market volatility and client activities have soared and the trading desks will likely continue witnessing 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 support the operations of investment banks. The industry players are attracting and retaining the best talent for building a leadership team and spending heavily on technology to help clients with infrastructure development and new platforms. While the industry players are likely to face increasing technology-related expenses in the near term, these initiatives are expected to improve operating efficiency over time.

Subdued Underwriting and Advisory Businesses: After a prolonged weakness in underwriting, IPOs and deal-making activities since 2022 due to geopolitical tensions and global macroeconomic concerns, advisory and underwriting businesses started showing green shoots. The year 2025 began on an extremely positive note, with the expectations of robust investment banking performance on the back of the Trump administration being business-friendly and the likelihood of tax cuts and deregulations. 

However, none of these materialized, and the M&A rebound failed to take hold as uncertainty over the tariff and the ensuing trade war resulted in extreme market volatility. These developments have led to economic ambiguity, with data indicating a slowdown in the U.S. economy and mounting inflationary pressure. Hence, amid such a backdrop, companies started rethinking their M&A plans despite stabilizing rates and having significant investible capital. As a result, investment banks are likely to encounter headwinds in their underwriting and advisory businesses, putting pressure on top-line growth.

Zacks Industry Rank Indicates Robust 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 #72, which places it in the top 29% 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 December 2024, the industry’s earnings estimates for the current year have been revised 4.8% upward.

Before we present a couple of stocks that you may want to invest in, 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 two years. While stocks in the industry have collectively surged 45.5%, the S&P 500 composite has rallied 24.6% and the Zacks Finance sector has risen 29.5%.

Two-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 2.31X, above the median level of 2.13X, 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 11.58X and the median level is 13.95X.

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 5.15X and the median level of 4.60X for the same period are above the Zacks Investment Bank industry’s respective ratios.

Price-to-Tangible Book Ratio (TTM)

 

3 Investment Banks to Buy

Interactive Brokers: This Zacks Rank #2 (Buy) company operates as an automated global electronic market maker and broker. IBKR, based in Greenwich, CT, specializes in routing orders, apart from executing and processing trades in securities, futures, foreign exchange instruments, bonds and mutual funds on more than 135 electronic exchanges and market centers worldwide. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Since its inception, Interactive Brokers has been chiefly focused on developing proprietary software to automate broker-dealer functions. This has resulted in a steady top-line improvement. Also, innovative products and measures taken to enhance global presence are expected to strengthen the company’s position in the online brokerage space.

Though rising expenses act as a deterrent, IBKR continues to explore opportunities in emerging markets. Further, given the rapid growth of its European business, the company has substantially expanded its operations there. These efforts help diversify its operations and gain revenue stability. Also, after becoming the first SFC-licensed securities broker to be approved to allow retail clients to trade cryptocurrencies in Hong Kong, Interactive Brokers launched crypto trading in the U.K. With this, the company expanded its scope of digital asset exposure.

Shares of the company, which has a market cap of $61.7 billion, have rallied 29.9% over the past year. The Zacks Consensus Estimate has remained unchanged at $7.12 for 2025 in the past 30 days.

Price and Consensus: IBKR

Robinhood: HOOD, carrying a Zacks Rank #2, is a financial services company that offers trading services in crypto, stocks, options and ETFs, cash management, margin and securities lending and Robinhood Gold. The company aims to democratize finance through its commission-free trading model with no account minimums.

With the Federal Reserve lowering interest rates, Robinhood’s transaction-based revenues are expected to improve as investors seek higher returns through capital markets and alternative investments. The company’s efforts to become a leader in the active trader market alongside increased retail participation and secular tailwinds, such as a higher U.S. mobile banking population, will likely drive its top-line growth.

HOOD continues to diversify its product base to acquire new clients and gain market share. This will expand the company’s client base, enabling greater operating leverage and paving the way for sustained profitability. The company has been engaged in opportunistic expansions to deepen its footprint within the United States and globally. Strategic expansion buyouts will continue to aid the company’s growth and establish its international presence.

With a market cap of $30.6 billion, Robinhood is expected to continue benefiting from its business expansion efforts. Its shares have soared 93.5% over the past 12 months. The Zacks Consensus Estimate for 2025 earnings has been revised 10.6% lower to $1.35 over the past month.

BGC Group: This financial brokerage and technology company is based in New York and operates in the United States, Europe, the Middle East, Africa and the Asia Pacific. The company offers various brokerage products and services, and its integrated platform provides flexibility to customers regarding price discovery, trade execution and processing of transactions, as well as accessing liquidity through its platforms.

BGC, sporting a Zacks Rank #1, acquired OTC Global Holdings, LP, one of the fastest-growing energy and commodities brokerage firms, in April for $325 million. Moreover, it acquired Sage Energy Partners, LP, an energy and environmental brokerage firm, last year. Both buyouts represent an advancement in the company's growth strategy, solidifying the Energy, Commodities and Shipping ("ECS") business as the largest asset class within BGC. 

BGC Group is well-positioned to capitalize on growing environmental and energy transition trends and will keep benefiting from consistent global demand for oil, the single largest source of energy. As such, the company’s top-line growth is anticipated to be impressive over the long term. 

With a market cap of $3.7 billion, BGC Group is expected to continue benefiting from its business expansion initiatives. Its shares have lost 6.1% over the past year. The Zacks Consensus Estimate for 2025 earnings has remained unchanged at $1.16 over the past 30 days.

Price and Consensus: BGC

 

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Interactive Brokers Group, Inc. (IBKR): Free Stock Analysis Report
 
BGC Group, Inc. (BGC): Free Stock Analysis Report
 
Robinhood Markets, Inc. (HOOD): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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