Goldman Sachs vs. Morgan Stanley: Which Investment Bank Offers More Upside in 2025?#

Stock Performance#

• Goldman Sachs (GS): Shares surged 48.6% over the past year, outperforming the Zacks Investment Bank industry’s 37.1% rise. On July 9, 2025, GS closed at 696.56 USD (open: 704.34, high: 702.583, low: 693.31), down 0.10% from the previous close of 697.28. Over one month, GS rose from 613.55 (June 9) to 696.56 (July 9), a 13.5% gain.
• Morgan Stanley (MS): Shares gained 40.8% over the past year, trailing GS but outperforming the industry. On July 9, 2025, MS closed at 141.55 USD (open: 142.90, high: 142.905, low: 140.94), up 0.30% from 141.13. Over one month, MS rose from 132.00 (June 9) to 141.55 (July 9), a 7.2% gain.
• Market Context: The S&P 500 rallied 11.7% over the past year, indicating both firms outperformed broader markets despite tariff-related volatility in April 2025, when the S&P 500 dropped 10% (BlackRock, web:6). Posts on X, like @andrearslanian’s (July 9, 2025), highlight GS’s recent outperformance, attributing it to its “gold standard” reputation in investment banking (IB).

Business Models and Strategic Positioning#

• Goldman Sachs: GS is refocusing on its core IB and trading strengths, scaling back consumer banking. It ranked #1 in announced and completed M&As in 2024, driving a 77% earnings jump and 16% revenue growth (Nasdaq, web:1). Key deals include advising Kellanova on its 35.9 billion sale to Mars and ConocoPhillips on its 22.5 billion acquisition of Marathon Oil (Business Insider, web:2). GS’s global reach, with offices in London, Tokyo, and Hong Kong, and its 216.77 billion market cap, bolster its dealmaking dominance (Yahoo Finance, web:10). However, its reliance on IB makes it vulnerable to market volatility, as seen in Q1 2025’s muted deal activity (CNBC, web:14).
• Morgan Stanley: MS has diversified its revenue, with wealth and asset management contributing 55% of net revenues in 2024, up from 26% in 2010, and 50.3% in Q1 2025 (Yahoo Finance, web:15). Strategic acquisitions like Eaton Vance, E*Trade, and Shareworks enhance stability, with wealth management revenue rising 13% to 7.5 billion in Q4 2024 (Reuters, web:3). MS’s 226.32 billion market cap and 7.9 trillion in client assets position it for steady growth (Reuters, web:21). Its balanced model offers resilience but less upside in high-dealmaking environments.
• Alignment with Trends: The Grant Thornton Q2 2025 CFO Survey notes CFOs’ focus on scenario planning (42%) amid tariff uncertainty, impacting M&A (previous context). The Bank of England’s July 2025 report highlights global fragmentation risks, which GS’s IB focus and MS’s diversification both navigate (previous context). The U.S. fentanyl sanctions on Mexican firms underscore AML compliance needs, where MS’s wealth management tech investments align with RegTech trends (Reuters, previous context).

Valuation Analysis#

• Price-to-Tangible Book (P/TB) Ratio:
  • GS: Trailing 12-month P/TB ratio of 2.07X, below the industry average of 2.83X, making it attractive for value investors (Yahoo Finance, web:15).
  • MS: P/TB ratio of 3.01X, a premium to GS and the industry, signaling higher downside risk (Yahoo Finance, web:15; Investing.com, web:23).
• Dividend Yields:
  • GS: 1.72% yield, below the industry’s 1.93%, with a 33% dividend hike to 4 per share and 43.6 billion in share repurchase authorization (Yahoo Finance, web:15).
  • MS: 2.62% yield, above industry average, with an 8% dividend increase to 1 per share and a 20 billion buyback program (Yahoo Finance, web:15).
• Insight: GS’s lower P/TB ratio suggests undervaluation, while MS’s higher dividend yield appeals to income-focused investors. Goldman’s downgrade of MS to neutral in September 2024, citing a 3% downside risk in wealth management net interest income, reinforces GS’s valuation edge (Investing.com, web:23).

Earnings Estimates for 2025 and 2026#

• Goldman Sachs:
  • 2025: Zacks Consensus Estimate projects EPS growth of 8.9% to 46.40, with sales up 6.9%. Estimates have moved upward over the past week (Yahoo Finance, web:15).
  • 2026: EPS growth of 14.8% to 51.34, though estimates have trended lower over 60 days (Nasdaq, web:1).
• Morgan Stanley:
  • 2025: EPS growth of 7.4% to 8.01, with sales up 6%. Estimates unchanged recently (Yahoo Finance, web:15).
  • 2026: EPS growth of 8.4% to 9.29, with upward revisions over the past week (Yahoo Finance, web:15).
• Context: GS’s stronger EPS growth reflects its IB-driven recovery, while MS’s stable estimates align with its diversified model. The Zacks Investment Bank industry’s 5.8% upward earnings revision since October 2024 supports both firms’ growth (Nasdaq, web:9).

Opportunities and Risks#

• Opportunities:
  • GS: Its #1 M&A ranking and focus on IB position it to capture a projected 20%+ rise in 2025 dealmaking (Dealogic, web:15). Passing the Fed’s 2025 stress test ensures capital flexibility (Yahoo Finance, web:15).
  • MS: Wealth management growth, targeting 10 trillion in client assets, and tech investments (e.g., E*Trade) offer stability (Reuters, web:3). Regulatory easing under Trump could boost both firms (Nasdaq, web:7).
  • Market Trends: The 22 billion RegTech market supports compliance investments, as seen in CSBS’s virtual currency guidance (previous context).
• Risks:
  • GS: Heavy IB reliance risks volatility if tariffs or geopolitical tensions (e.g., U.S.-China trade war) slow M&A (CNBC, web:14; BoE, previous context).
  • MS: Premium valuation (3.01X P/TB) and potential wealth management margin pressure (40 bps downside) increase downside risk (Investing.com, web:23).
  • Shared: Rising operating costs (GS: 6% CAGR, MS: 7.6% from 2020–2023) and regulatory uncertainties, like Mexico’s fentanyl sanctions response, pose challenges (Nasdaq, web:7; Reuters, previous context).

Recommendations#

• Investors:
  • GS: Preferred for growth-oriented investors due to its valuation (2.07X P/TB), 8.9% 2025 EPS growth, and M&A leadership. Monitor tariff developments, as delays to August 2025 provide dealmaking clarity (Yahoo Finance, previous context).
  • MS: Suited for income-focused investors with its 2.62% dividend yield and stable wealth management revenue. Consider holding given neutral rating and premium valuation (Investing.com, web:23).
  • Explore RegTech ETFs or firms like SymphonyAI to hedge compliance risks (Thomson Reuters, previous context).
• Financial Institutions:
  • Both firms should leverage AI for cost optimization, as 77% of CFOs report 2x ROI on generative AI (Grant Thornton, previous context).
  • Enhance AML/KYC systems to align with global standards, as seen in U.S. fentanyl sanctions (Reuters, previous context).
• Regulators: Coordinate with the FSB to address fragmentation, as per BPI-GFMA-IIF’s 780 billion cost estimate, ensuring tariff and sanctions policies don’t disrupt M&A (previous context).

Conclusion#

Goldman Sachs offers more upside potential in 2025 due to its dominant IB position, attractive valuation (2.07X P/TB vs. MS’s 3.01X), and stronger EPS growth (8.9% vs. 7.4%). Its 48.6% stock performance and M&A leadership outweigh MS’s 40.8% gain and diversified stability. However, MS’s 2.62% dividend yield and wealth management focus appeal to conservative investors. Both face risks from tariffs and rising costs, but GS’s fundamentals make it the better pick for growth. Contact Zacks Investment Research at support@zacks.com for detailed reports or certified advisors for investment guidance.