3 Investment Bank Stocks Set to Benefit From Industry Tailwinds

The Zacks Investment Bank industry is poised to benefit from clarity on trade and monetary policy, a resilient economy and lower financing costs, which will likely support M&A and underwriting activities. Trading revenues are expected to stay robust as lingering geopolitical risks and macro uncertainty sustain market volatility and client engagement.

Rising investments in AI, technology and platforms could increase near-term expenses but should enhance long-term operating efficiency. So, industry players like Morgan Stanley MS, The Charles Schwab Corporation SCHW and Interactive Brokers Group, Inc. IBKR are worth considering.

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. 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 Momentum to Persist: Following a prolonged slump in underwriting, IPOs and deal-making since 2022 amid geopolitical tensions and macro uncertainty, investment banking activity has rebounded. Expectations of a pro-business Trump administration, deregulation and improving policy clarity are supporting advisory and underwriting pipelines. Recent industry trends point to a stronger 2026 M&A cycle, aided by strategic transformations, private-market activity, flexible capital solutions and faster deal execution, while IPO markets are reopening selectively.

A resilient economy, easing financing costs and renewed corporate confidence are expected to bolster M&A and capital-markets revenues. However, Middle East tensions, tariff-related uncertainty and still-selective investor demand could temper the pace of recovery. 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. President Donald Trump’s tariff plans and ongoing geopolitical matters have upended the near-term normalization of the trading business. 

Against this backdrop, market volatility and client engagement have remained elevated, keeping trading desks active across asset classes. As investors continue to reposition portfolios in response to policy uncertainty, rate movements and geopolitical developments, investment banks are likely to benefit from sustained trading volumes. Trading income is expected to remain solid 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 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 Suggests Bullish Stance

The Zacks Investment Bank industry is a 21-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #32, which places it in the top 13% of more than 245 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 2026 have been revised upward by 17.8%.

Before we present a few 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’s Stock Market Performance Is Impressive

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 soared 72.6%, the S&P 500 composite has rallied 42.8%, and the Zacks Finance sector has risen 31.9%.

Two-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 3.32X, above the median level of 2.26X 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 for the S&P 500 is 10.16X and the median level is 13.12X.

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 6.10X and the median level of 4.87X for the same period are above the Zacks Investment Bank industry’s respective ratios.

Price-to-Tangible Book Ratio (TTM)

3 Investment Bank Stocks to Bet On

Morgan Stanley: It operates globally as an investment banking, securities and investment management company. The key reason for this Zacks Rank #1 (Strong Buy) company’s earnings stability is its business diversification initiatives. You can see the complete list of today’s Zacks #1 Rank stocks here.

New York-based Morgan Stanley is gradually lowering its reliance on capital markets for income generation by expanding wealth and asset management and using acquisitions (Eaton Vance, E*Trade Financial, Shareworks and EquityZen) to broaden distribution. These moves have supported diversification and a more balanced revenue stream across market cycles. As of June 30, 2026, total client assets across the Wealth Management and Investment Management segments reached $10 trillion, meeting a major milestone. This progress reflects strong momentum across Morgan Stanley’s advisor-led, workplace and self-directed platforms, while highlighting its expanding scale in the retirement savings market. 

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. The company’s global platform is increasingly relevant as capital markets activity broadens outside the United States and across Japan, India, China, South Korea, Taiwan and Hong Kong. Continued investment in regional leadership and collaboration should support wallet share gains across Asia’s capital markets and wealth opportunity set.

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. Momentum is expanding beyond the Americas into Asia and EMEA, while active M&A and IPO markets, together with the company’s strong competitive position, should support further growth as the macroeconomic backdrop evolves.

With a market cap of $337.5 billion, MS is expected to continue benefiting from its scale and business expansion efforts. Its shares have jumped 28.6% over the past six months. The Zacks Consensus Estimate for 2026 and 2027 earnings implies a year-over-year rise of 25.3% and 2.1%, respectively.

Price and Consensus: MS

Schwab: With more than $13 trillion in total client assets and a dominant position in both retail brokerage and advisor custody, Schwab benefits from deep client relationships and recurring revenue streams. The company continues to build scale in advice and managed investing, which carries higher revenue per client asset than self-directed activity. This has been driving SCHW’s wealth and banking solutions inflows.

Prior acquisitions, including TD Ameritrade, USAA’s IMCO assets, Wasmer Schroeder and Motif, expanded distribution and product depth, and Forge Global added another capability layer in private markets. Schwab’s scale in both retail and RIA custody continues to translate into durable account growth and net new assets, even in volatile markets. The company continues to add financial consultants and wealth advisers and plans to open new branches. Over time, this mix shift should help Schwab monetize a growing base of client assets with less dependence on episodic trading cycles. 

Schwab has moved beyond its AI roadmap into live client deployments, strengthening the potential for technology to deepen engagement and create new monetization avenues. Schwab expanded its digital capabilities with Portfolio Insights, a generative-AI tool for self-directed retail clients, and launched Schwab Crypto, offering direct Bitcoin and Ethereum access. It is also advancing AI-enabled client and advisor tools and invested $65 million in AI-powered wealth-management platform Wealth.com.

A key strength of Schwab is its diversified revenue base, which includes net interest income, asset management fees and advisory services. The company’s scale and trusted platform position it well to serve as a bridge between traditional finance and digital assets, especially as cryptocurrency adoption becomes increasingly mainstream.

With a market cap of $186.9 billion, Schwab is expected to benefit from strategic buyouts, a rise in investing solution fees and by leveraging AI to expand relationship-based business. Shares of this Zacks Rank #2 (Buy) company have risen 13.2% over the past six months. The Zacks Consensus Estimate for 2026 and 2027 earnings indicates a jump of 32.7% and 21.2%, respectively, on a year-over-year basis.

Price and Consensus: SCHW

Interactive Brokers: This Zacks Rank #2 company is a well-known fintech broker. The company’s biggest strength stems from its deep, multi-asset global market access, unmatched by most retail and even many institutionally focused competitors. IBKR enables clients to trade across more than 170 markets, dozens of currencies and a wide range of asset classes, including equities, options, futures, foreign exchange, bonds and funds, from a single unified platform. 

Another strong aspect of IBKR is technological superiority. This has kept the company’s compensation expense relative to net revenues (9.8% in the first half of 2026) below its industry peers. It has been emphasizing the development of proprietary software to automate broker-dealer functions, leading to a steady rise in revenues. This cost discipline supports competitive pricing and reinvestment capacity as the client base grows.

Interactive Brokers continues to broaden its product suite and enhance platform capabilities, helping expand its addressable client base, deepen engagement and diversify fee-generating opportunities. The continued rollout of differentiated products should strengthen client retention, increase platform usage and create incremental revenue opportunities while helping Interactive Brokers remain competitive in the rapidly evolving electronic brokerage industry.

Interactive Brokers’ technological superiority, along with a more supportive regulatory environment that could improve product velocity, is expected to bolster net revenues by driving higher client acquisitions. Revenues are also likely to benefit from solid Daily Average Revenue Trades and a favorable trading backdrop supported by increased market participation. IBKR continues to scale its international platform to capture rising cross-border investing demand and wealth creation in emerging markets. Its expanding geographic and product footprint will likely support sustained account growth, diversify client activity across regions and strengthen long-term revenue opportunities.

With a market cap of $164.5 billion, Interactive Brokers is expected to continue benefiting from its business expansion efforts and favorable operating environment. Its shares have gained 34.7% over the past six months. The Zacks Consensus Estimate for 2026 and 2027 earnings indicates an increase of 22.8% and 18%, respectively, on a year-over-year basis.

Price and Consensus: IBKR

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

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