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Forget AI, this M&A stock is up 46%

AI stocks have been in a bit of a slump lately, as investors rotate into less pricey and more reasonably valued stocks.

One area that continues to gain interest is financial stocks. Still elevated interest rates are producing lots of net interest income; yet, rates are ticking down and are expected to keep moving lower over the next couple of years. That will lead to more businesses investing, more loans, and more mergers & acquisitions – all of which is good for financial companies.

The two recent Fed rate drops, with a third rate cut this year expected on December 10, have accelerated an already robust M&A market. And that is good for the big investment banks –particularly Goldman Sachs (NYSE:GS).

Goldman Sachs is one of the largest, if not the largest, investment bank in terms of the value of the deals it conducts. And it ranks in the top 2 or 3 in other measures, such as revenue and fees from investment banking, and number of deals.

But compared to its chief competitors, JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS), Goldman Sachs typically generates a higher percentage of its overall revenue from investment banking than the other major players. So, when investment banking is hot, like it is now, Goldman Sachs typically sees a bigger boost in earnings, which propels its stock price higher.

This year, Goldman Sachs stock has outperformed its peers, up about 46% year-to-date. And the M&A market, which is not slowing down, is a big reason.

“One of the most active years in history”

In the third quarter, buoyed by rate cuts, M&A activity surged, according to a report from Deloitte. In the U.S., deal value hit $598 billion, which was up 56% from the second quarter. That $598 billion worth of deals was the most in a quarter in four years. The number of deals also increased, but only by about 2%, suggesting the deals that were done were mega deals.

Goldman Sachs captured a lot of that, as it saw total revenue increase 20% year-over-year in the third quarter. The revenue increase was fueled by a 42% increase in investment banking fees.

On a recent podcast, Stephan Feldgoise, head of the global M&A business at Goldman Sachs, said the pace of deals in the last three months has rivaled 2021, which was one of the busiest years for M&A ever.

It’s not just become an active year,” Feldgoise said, “it’s become one of the most active years in history.”

The outlook for 2026 suggests that M&A activity is not slowing down. The Deloitte survey found that 80% of corporate and 90% of private equity dealmakers anticipate an increase in the number of deals, while 81% and 87%, respectively, expect the value of deals to increase.

One of the driving forces, along with lower rates, is AI, as it is forcing companies to rethink and adjust their long-term strategies, said Feldgoise.

This should bode well for investment banks, particularly Goldman Sachs, as it’s a bigger part of their business. Goldman Sachs stock is particularly attractive trading at just 15 times forward earnings.

Author

Jacob Wolinsky

Jacob Wolinsky is the founder of ValueWalk, a popular investment site. Prior to founding ValueWalk, Jacob worked as an equity analyst for value research firm and as a freelance writer. He lives in Passaic New Jersey with his wife and four children.

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