The Zacks Investment Bank industry is poised to benefit from greater clarity on trade and monetary policy, a resilient economy and lower financing costs, which should support M&A and underwriting activity. 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 pressure near-term expenses but should enhance long-term operating efficiency. So, industry players like Morgan Stanley (MS Quick QuoteMS - Free Report) , The Charles Schwab Corporation (SCHW Quick QuoteSCHW - Free Report) and Interactive Brokers Group, Inc. (IBKR Quick QuoteIBKR - Free Report) are worth betting on for 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. 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 should further 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 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 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 Encouraging Picture

The Zacks Investment Bank industry is a 21-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #98, which places it in the top 40% 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 2026 have been revised upward by 13.1%.

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 65.3%, the S&P 500 composite has rallied 42.7%, and the Zacks Finance sector has risen 34.5%.

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 3.23X, above the median level of 2.24X 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 11.90X and the median level is 13.33X.

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 5.90X and the median level of 4.80X 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 Now

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 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 March 31, 2026, total client assets reached $9.2 trillion, bringing the company closer to its longstanding $10 trillion asset management target set by former CEO James Gorman. 

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. Management indicated pipelines remain steady for the remainder of 2026, supported by strategic activity from corporates and sponsors and ongoing capital formation needs.

With a market cap of $334.3 billion, MS is expected to continue benefiting from its scale and business expansion efforts. Its shares have jumped 18.1% over the past six months. The Zacks Consensus Estimate for 2026 and 2027 earnings implies a year-over-year rise of 16.1% and 5.2%, respectively.

Price and Consensus: MS

Schwab: With more than $12.5 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 about a dozen new branches in 2026. Over time, this mix shift should help Schwab monetize a growing base of client assets with less dependence on episodic trading cycles. 

Schwab’s shift from product roadmap to rollout should deepen engagement and expand fee growth opportunities. Its first retail generative AI tool, Portfolio Insights, is being expanded to all self-directed U.S. clients, while 2026 launches include generative search on schwab.com and an Investor AI assistant. A phased spot crypto rollout, starting with Bitcoin and Ether, is also expected after an employee pilot. These initiatives aim to personalize advice, boost service productivity and open new distribution channels with human oversight and guardrails.

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 $154.5 billion, strategic buyouts, a rise in investing solution fees and leveraging AI to expand relationship-based business will support Schwab. Shares of this Zacks Rank #2 company have declined 8.1% over the past six months. The Zacks Consensus Estimate for 2026 and 2027 earnings indicates a jump of 25.7% and 7.8%, 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 160 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 (10% in the first quarter of 2026) below its industry peers. It has been emphasizing developing 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 add features that widen its addressable client base and deepen wallet share. The company recently added two platform enhancements: a single screen for trading prediction-market contracts across Kalshi, CME and ForecastEx, and an AI integration with Anthropic’s Claude for research and navigation. These launches build on additions such as stablecoin funding, Coinbase Derivatives access and the Connections discovery feature, and they complement tools like Ask IBKR and AI News Summaries. These and several other initiatives support retention and diversify fee opportunities beyond a single product line amid stiff competition. 

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 should also 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 should support sustained account growth, diversify client activity across regions and strengthen long-term revenue opportunities.

With a market cap of $143.2 billion, Interactive Brokers is expected to continue benefiting from its business expansion efforts and favorable operating environment. Its shares have soared 31% over the past six months. The Zacks Consensus Estimate for 2026 and 2027 earnings indicates an increase of 12.3% and 14.6%, respectively, on a year-over-year basis.

Price and Consensus: IBKR