Is this a buying opportunity?
Tuesday is the unofficial start of third quarter earnings season, and it features three financial services giants that represent different aspects of the industry.
JPMorgan Chase (NYSE:JPM) is a proxy for banking, while BlackRock (NYSE:BLK) serves as a barometer for asset management. Both turned in solid to good results, as we have covered.
A third financial behemoth that reported earnings Tuesday, Goldman Sachs (NYSE:GS), could be viewed as representative of investment banking. While JPMorgan Chase is also a major player in investment banking, Goldman Sachs derives a higher percentage of its revenue from investment banking, making it more representative of the industry.
So, how did Goldman Sachs do in Q3? Like the others, Goldman Sachs had a strong quarter, crushing estimates. Here are some of the results:
- Revenue: $15.2B, up 20% year-over-year and better than estimates of $14.1B
- Net earnings: $4.1B, up 37% year-over-year and 10% over the previous quarter.
- Earnings: $12.25 per share, up 46% year-over-year and better than estimates of $11.00 per share.
“This quarter’s results reflect the strength of our client franchise and focus on executing our strategic priorities in an improved market environment,” Goldman Sachs Chairman and CEO David Solomon said.
Upswing in investment banking
Goldman Sachs derives most of its revenue, about two-thirds, from its Global Banking and Markets business, which includes investment banking and institutional trading. Overall, this business generated $10.2 billion in revenue in the quarter, up 18%.
But most of that alpha came from investment banking (IB), as Goldman Sachs saw investment banking revenue surge 42% to $2.7 billion. IB revenue was bolstered by a significant increase in mergers and acquisitions.
We’ve seen increased momentum in our number one M&A franchise as clients turn to us for their most consequential transactions,” Solomon said. “Recently, we hit the milestone of advising on over $1 trillion in announced M&A volumes for 2025 year to date. This is $220 billion ahead of our next closest competitor and underscores our dominant position as the advisor of choice for clients.”
With interest rates declining, the environment for M&A and investment banking is expected to improve.
On the earnings call, Solomon said he anticipates an upswing in investment banking activity over the next 12 to 24 months. Unless there is a macro disruption, Solomon expects 2026 to be an even better year for M&A than 2025 with a backlog of deals that is at its highest level in three years.
Buy the dip?
Goldman Sachs is having a great 2025, with the stock price up 37% year-to-date (YTD). It still looks like a good option given the growth outlook and its low valuation, trading at just 17 times earnings and 14 times forward earnings.
The stock was down about 1% on Tuesday, potentially from investor reaction to a 14% increase in expenses. But much of that came from higher compensation and increased headcount, which could be viewed as necessary to ramp up for the growth the company expects.
The dip could be a good opportunity for investors, as Goldman Sachs is reasonably valued and poised for growth right now.
