3 Stocks to Buy From the Prospering Investment Banking Industry

The Zacks Investment Bank industry is set to benefit from clarity on trade and monetary policy, a resilient economy and lower financing costs, which will boost M&As and underwriting prospects in 2026. Trading revenues are likely to remain strong as geopolitical risks and tariff concerns help sustain market volatility and client activity. 

Meanwhile, rising investments in AI, technology and platforms may weigh on costs in the near term but are expected to enhance long-term operating efficiency. Hence, industry players like Morgan Stanley MS, Robinhood Markets, Inc. HOOD and Piper Sandler Companies PIPR are worth investing in to generate solid returns.

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).

Key Trends Shaping the Future of the Investment Bank Industry

Underwriting and Advisory Businesses Regain Momentum: Following a prolonged slump in underwriting and IPOs, as well as 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 and monetary policy directions. The outlook and visibility on M&As and underwriting operations are encouraging going into 2026, driven by a resilient economy, declining financing costs and renewed corporate confidence. This evolving macro backdrop is setting the stage for continuous 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 Optimistic 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 #29, which places it in the top 12% of more than 240 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. Over the past year, the industry’s earnings estimates for 2025 and 2026 have been revised upward by 12.9% and 1%, respectively.

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's Stock Market Performance Is Impressive

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 38.4%, the S&P 500 composite has rallied 17.9% and the Zacks Finance sector has risen 18.1%.

One-Year Price Performance

 

Industry's Valuation is Attractive

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 results from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 3.12X, above the median level of 2.20X 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 12.78X and the median level is 13.65X.

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 6.00X and the median level of 4.74X for the same period are above the Zacks Investment Bank industry’s respective ratios.

Price-to-Tangible Book Ratio (TTM)

 

3 Investment Banks to Bet on for 2026

Morgan Stanley: This Zacks Rank #1 (Strong 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 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. Further, in October, it agreed to acquire EquityZen to tap the rapidly growing private markets landscape. These moves bolster the company’s diversification efforts, enhance stability and create a more balanced revenue stream across market cycles.

MS’ partnership with Mitsubishi UFJ Financial Group, Inc. will likely continue to support its profitability. In 2023, the companies announced plans to deepen their 15-year alliance by merging certain operations within their Japanese brokerage joint ventures. The move strengthens 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 $280.5 billion, MS is expected to continue benefiting from its scale and business expansion efforts. Its shares have jumped 31.9% in the past six months. The Zacks Consensus Estimate for 2025 and 2026 earnings implies a year-over-year jump of 22.8% and 5.8%, respectively.

Price and Consensus: MS

Robinhood: HOOD, also sporting a Zacks Rank #1, 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 has redefined retail investing through its tech-first, commission-free trading platform. By building a sleek, intuitive mobile platform, it has attracted millions of retail investors.

This digital-native strategy has enabled the company to scale rapidly across the United States, and now, it's setting its sights on global markets. In December, Robinhood agreed to acquire PT Buana Capital Sekuritas and PT Pedagang Aset Kripto, marking its entry into Indonesia and accelerating its Asia-Pacific (APAC) expansion plan. This signals a shift toward international expansion beyond its U.S.-centric base. 

Robinhood is also offering tokenized U.S. stocks and ETFs across 31 EU/EEA countries with 24/5 commission-free trading and aims to tokenize private companies. Expanded crypto services, a proprietary blockchain and future global banking products, along with new offices in Toronto and plans for APAC, position the company as a rising global fintech ecosystem. 

Robinhood is also evolving into more than just a trading app. Recent additions like IRAs, crypto wallets, prediction markets and a cash card indicate a shift toward building a full financial ecosystem. This strategy deepens user engagement and boosts revenue per customer, positioning the company as a long-term financial partner for its users.

With a market cap of $107.4 billion, Robinhood is expected to continue benefiting from its business expansion efforts. Its shares have soared 47.8% over the past six months. The Zacks Consensus Estimate for 2025 and 2026 earnings indicates an increase of 79.8% and 17.9%, respectively, on a year-over-year basis.

Piper Sandler: This Zacks Rank #1 company operates as an investment bank and institutional securities firm. The company, based in Minneapolis, MN, offers investment banking and institutional sales, trading and research services. Also, PIPR provides advisory and underwriting services. 

The company has been enhancing its scale and capabilities through strategic acquisitions and alliances. In October, the company signed a definitive agreement to acquire MENA Growth Partners, a merchant bank based in Abu Dhabi. Further, in September, Piper Sandler completed the buyout of G Squared Capital Partners, a premier boutique investment bank. These have not only diversified its revenue base but also expanded PIPR’s sector coverage, geographical footprint and market share.

Thus, through its scaled platform, Piper Sandler has been witnessing robust top-line growth. As the company continues to hire exceptional talent and broadens industry and product coverage, solid revenue growth is anticipated in the near term, as an industry-wide impressive operating backdrop offers support.

PIPR has a market cap of $5.7 billion. Over the past six months, shares of the company have surged 33.6%. The Zacks Consensus Estimate for earnings implies 22.5% and 6.2% year-over-year improvement for 2025 and 2026, respectively.

Price and Consensus: PIPR

 

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Morgan Stanley (MS): Free Stock Analysis Report
 
Piper Sandler Companies (PIPR): 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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