Goldman Sachs

Goldman Sachs reported sensational second-quarter 2026 earnings, with annual revenue growth of 39% and EPS growth of 92% on the back of 53% growth in the firm's global banking and markets business. Shares surged during July 14 trading.

Why it matters: For long-term investors, Goldman Sachs' second quarter represents an interesting exercise in avoiding the pitfall of chasing recent performance and of extrapolating recent results in a cyclical industry too far into the future. On one hand, the firm posted video game numbers (almost unbelievable results), with growth of 55% in investment banking, 53% in the consolidated banking and trading business, and 740 basis points of operating margin expansion. On the other, it sits in inherently cyclical, mean-reverting businesses like investment banking and trading that have historically grown at a low-single-digit and high-single-digit annual clip, respectively, compared with 24.5% and 20.9% between 2024-26 (projected).

The bottom line: We plan to maintain our $730 fair value estimate after digesting results, but this is largely due to an increase in our cost of equity for the bank, to 10.3% from 9.5%, as we calibrate our cost of capital assumptions across our global coverage. Adjusted for this, we would have raised our fair value by a low-double-digit percentage on the back of incredible results and stronger near-term free cash flow projections. Qualitatively, the bank continues to fire on all cylinders, growing wallet share with key institutional clients and its profitable prime brokerage operations (up an eye-popping 91% annually) with particular improvement in Asia. Its OneGS initiatives continue to bear fruit, cross-selling services to clients across the integrated bank, including 900 referrals from investment banking to the firm's growing wealth management business.

For a sense of the magnitude of outperformance, Goldman's $20.98 in diluted EPS and $20.3 billion in net revenue topped FactSet consensus estimates by an otherworldly 44.6% and 25.3%, respectively. There is no doubt that the firm is benefiting from significant secular tailwinds, from the generational artificial intelligence infrastructure buildout, and from surging demand from clients for liquidity and hedging services amid geopolitical and market volatility. Incredibly, it's possible that results strengthen even further in the near term, with the pending mega-IPOs of Anthropic and OpenAI lingering and with a long-awaited mergers and acquisitions super cycle tied to alternative asset manager asset realizations looking likely to materialize at some point in the medium term.

The issue, as we see it, is that market prices have grown really stretched, awarding peak multiples to what looks like peak—or at least near-peak—earnings. At the July 13 closing price, market valuations were approaching 3.0 times tangible book value for Goldman, compared with a trailing 15-year median closer to 1.0 times, by our math. There is no doubt that the business is in better shape than it has been arguably ever and should emerge as a long-term winner from ongoing industry consolidation, but our forecasts suggest that a 2.1 times price/tangible book multiple is "fair," even assuming significant improvements in returns on equity over the next decade—to 16.2% from 12.1% over the 2020-25 period. Goldman is a better business today than it has ever been, yet we urge investors to await a better entry point.

We've maintained our $730 fair value estimate after digesting Goldman Sachs' second-quarter 2026 results. That's almost exclusively driven by recalibrating our cost of capital assumptions across our global coverage (we now use a 10.3% cost of equity, up from 9.5% previously); absent this, we would have raised our fair value estimate by roughly 12% on the back of outstanding quarterly results. Our revised valuation corresponds with a 2.1 times price/2026 tangible book value.

Our expectations contemplate five-year compound average annual long-term growth in investment banking revenue of 3.1% annually, 5.0% growth in trading and financing, 9.9% annual growth in asset and wealth management, and 4.7% annual growth in net interest income, with balance sheet growth helping to offset declining interest rates. Within that, we expect a strong near-term rebound in investment banking revenue, driven by the deployment of significant volume of dry powder by alternative asset sponsors as interest rates fall, while we expect a drag from trading intermediation revenue after decent 2026-27 results, given that the segment appears to remains at peak cycle earning levels. In the asset and wealth management segment, we envision some benefit from the monetization of maturing alternative asset funds, which should drive higher incentive fee recognition and recognized revenue in on-balance-sheet equity and debt investments over the next few years, consistent with our view regarding alternative asset managers more broadly.

Turning to profitability, we view the firm's long-term targets for a 30% compensation ratio (compensation over post-provision revenue) and a 60% efficiency ratio (noninterest expenses over post-provision revenue) as achievable over the long run. As we see it, investments in technology have gradually shifted the balance of power slightly toward brands—investment banks—and away from star bankers, allowing for modest margin leverage over the compensation ratio over time, although intense competition for talent has recently slowed this trend. Still, we expect a significant 350 basis points of margin expansion between 2025 and 2035.

Finally, we expect the firm to modestly increase its leverage over the decade to come, with our estimates calling for 16.7 times leverage by the end of the decade, up from 14.4 times at the end of 2025. This should allow the firm to release some excess capital to shareholders over the next few years, but is contingent on a successful winddown of historical principal investments.

We believe that Goldman Sachs warrants a wide economic moat rating, suggesting that it is more likely than not to generate risk-adjusted profits over the next 20 years. As we see it, the firm has built a defensible brand intangible asset around its storied investment banking franchise and benefits from durable switching costs in its asset and wealth management operations. Our view is corroborated by average returns on tangible equity of 14.5% over the past five years, comfortably edging its 9.5% cost of equity despite a historically challenging industry backdrop in 2022-23. We expect future returns to strengthen further as Goldman exits its consumer banking misadventure, as its asset-light wealth management business continues to grow, as the bank achieves scale in select alternative asset management strategies, and as it exits a large swath of capital-intensive legacy principal investments by year-end 2026.

Goldman’s business exists in three parts today, but only two that should matter to long-term investors with the wind-down of its consumer portfolio: global banking and markets, and asset and wealth management. The former can be roughly decomposed into investment banking and institutional trading, although the two are quite tightly intertwined, while the latter can be broken down into asset management—predominately alternative asset management and fixed-income—and wealth management. We believe that both segments warrant a wide moat on a consolidated basis, although we see some nuance in each. Institutional trading, for instance, is significantly less moaty than investment banking when considered in isolation, but is a crucial part of the composite value proposition, attracting institutional investors to the Goldman Sachs ecosystem and helping it both successfully distribute initial public offering shares and raise capital for asset management funds. Further, asset management would probably be a narrow-moat segment on its own, but serves to increase switching costs in the competitively advantaged ultra-high-net-worth, or UNHW, wealth management business and deepens relationships with alternative asset fund sponsors that might, in turn, favor Goldman’s investment bank for M&A advisory or acquisition financing services. Altogether, we view the comprehensive Goldman Sachs ecosystem as extremely difficult to disrupt and view the firm as a long-term winner in an industry that continues to coalesce around a cadre of scaled global winners.

Evaluating these businesses in sequence, we believe that Goldman Sach’s global banking and markets segment (roughly 60% to 65% of projected midcycle revenue) warrants a wide economic moat rating, largely attributable to a self-reinforcing brand intangible asset in investment banking. More concretely, the Goldman Sachs brand allows the firm to compete for coveted lead underwriter roles in the most profitable and differentiated segments of investment banking: merger and acquisition advisory, and equity underwriting (particularly for IPOs). In our view, the Goldman Sachs brand confers legitimacy on an offering, while the firm’s deep institutional relationships and global trading capabilities allow it to profitably underwrite and place even the most complex offerings. It’s no coincidence, as a result, that the firm is involved in roughly one third of global M&A transactions by announced deal value, per Dealogic, and that it has maintained its place as the global leader in M&A advisory over each of the past 20 years. Participation in the most lucrative and high-profile deals, in turn, attracts the most productive bankers in something of a virtuous cycle, rendering it prohibitively difficult for boutique investment banks (like no-moat Jefferies) to crack the top five spots in the investment banking league table, frequently dominated by Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and Citigroup.

In investment banking, firms compete on the basis of reputation, experience, distribution, market making capabilities, fees, research, and after-offering services, which together underpin modest pricing power. While competition is intense, the largest deals require capability, reach, relationships, and a balance sheet that only the biggest global banks can provide. It’s no coincidence, in our view, that revenue share has very gradually consolidated around those big banks, and with companies staying private for longer—and going public when larger as a result—we expect the balance of power to continue to tilt gradually toward the largest global banks for the foreseeable future. To this effect, the largest 10 banks captured 45% of industry revenue in 2025 (Dealogic), and Goldman has seen its global market share grow from 7.2% in the five years following the global financial crisis to 9.4% on average during the most recent half-decade. Most importantly, the return profile is extremely healthy, if volatile, with investment banking generating a 25% average return on equity when disaggregated—that is, between 2008 and 2021—comfortably in excess of the firm’s 9.5% cost of equity.

Institutional trading and market making, by contrast, is more or less a cost of capital business in the aftermath of the global financial crisis, generating an average 9.4% return on equity when disaggregated (or 10.6% excluding 2008). In this segment, the firm both executes trades for clients and acts as a counterparty when needed, committing capital and taking risk to mediate client trades across fixed income, currency, commodities, equities, and derivative products. Any moat here, on a standalone basis, would be derived from a scale-driven cost advantage, a network effect (trading liquidity begets liquidity), or switching costs, predominately in prime brokerage. The lack of quantitative support, client preference for multi-homing, and presence of a handful of viable global competitors seems to short-circuit those arguments, although the trading desk remains a critical part of the Goldman ecosystem and is, at worst, economic profit neutral through the cycle.

To illustrate the ecosystemic benefits of trading, Goldman Sachs might choose, for example, to provide a valued client with complex, custom derivative exposure through its trading desk at a risk-adjusted loss, to strengthen a relationship that could stretch across the firm’s suite of financial services. A massive counterparty like Fidelity, for example, could subscribe to an IPO’s where Goldman is the lead underwriter, lending cachet to the cap table and helping ensure a successful issuance. It might also pay for Goldman research, utilize the firm’s prime brokerage services, and allow its brokerage customers to invest in Goldman funds. Goldman, in turn, might provide the firm with access to attractive, oversubscribed issues, allow it to tap into the bank’s liquidity at better prices than it would receive from lit trading venues, and could help it hedge unwanted risk exposures with bespoke derivative products. As a result, we tend to view institutional trading as inextricably intertwined with the remainder of the Goldman ecosystem, and as an essential component of that system. It’s no coincidence, in our view, that the firm’s four largest institutional trading competitors are also its largest competitors in investment banking, as competency in those businesses appear to be interrelated. Taken together, as we believe is appropriate, the global banking and markets segment (investment banking plus institutional trading) has generated an average ROE of 14% over the past decade, with a significantly lower standard deviation of returns than either business generated independently. We project roughly 18% average annual segment returns on equity over the decade to come.

Turning to asset and wealth management (40% of midcycle firmwide revenue), we believe that the segment also warrants a wide economic moat, predominately attributable to switching costs and, to a lesser extent, to intangible assets. With $3.6 trillion in assets under supervision, and $1.9 trillion in wealth management assets at year-end 2025, Goldman is now one of the larger asset and wealth managers in our coverage, if significantly smaller than household names like JPMorgan, Bank of America, and Morgan Stanley. This segment’s results remain slightly depressed by recently low realization rates in alternative asset management and by the winddown of its historical principal investment portfolio but should achieve midcycle returns in the high teens, by our math, and average returns on equity of 18% to 19% over the decade to come, roughly in line with large, publicly traded alternative asset managers.

In asset management (45% of segment sales), the firm’s product suite runs the gamut of alternative assets, active fixed income, active equity, and liquidity products, and the combination of attractive product mix and strong organic inflows point toward an intangible asset moat. By our math, 65% of the firm’s long-term assets under management at the end of 2025 sat in the relatively attractive alternative asset and fixed income categories, where the firm has seen very healthy 5.7% and 3.3% average annual organic inflows between 2017 to 2025. Even active equity, a secularly pressured category, has enjoyed 2.6% average annual organic inflows over that period, attesting to a strong investment track record and likely intangible asset moat source. In asset management, Goldman benefits to some extent from switching costs—both implicitly from accrued capital gains and more explicitly from lockup periods or redemption gates in its alternative asset funds. On a standalone basis, Goldman Sachs' asset management would likely warrant a narrow economic moat but provides the firm with particular benefit for its distribution of proprietary funds to wealth management clients, reinforcing switching costs in that high-return, growing segment.

Wealth management (55% of segment sales) is a very attractive business, with relationships between financial advisors and clients creating significant inertia. For financial advisors, switching costs are more explicit, with advisors relinquishing around 20% of their client assets upon departure (Cerulli) to unplanned churn and having to learn new trading and bookkeeping systems with their new firm. For clients, churn rates are exceedingly low—with client retention tending to clock in between 95% to 100% (LPL Financial disclosures) through the cycle—indicative of switching costs or fairly powerful inertia. Notably, wealthier clients also tend to be the stickiest, with Morgan Stanley disclosing 99% retention among clients with more than $1 million in assets. This makes some qualitative sense. High-net-worth, or HNW, and UHNW clients would be far more likely to value high-touch, bundled services that come with more explicit switching costs, like estate planning, cash management, and philanthropic advisory. They’re more likely to care about product access, tax harvesting through separately managed accounts, or SMAs, or execution of trust accounts. To illustrate switching costs for this cohort, a UHNW customer leaving Goldman Sachs for, say, Morgan Stanley might have to unwind any institutional share classes of mutual fund holdings, sell or re-underwrite fixed income securities that the Morgan Stanley team wasn’t involved in underwriting at conception (they can’t simply “inherit” the Goldman thesis), gradually sell down alternative asset holdings, unwind any bespoke hedges or structured notes, and secure consent from beneficiaries or even court approvals to move around trust accounts. Instead, most prefer to avoid the headache altogether, sticking with a wealth manager until intergenerational wealth transfer nexus points—and often after. With an average account balance of $70 million, a minimum account size of $10 million, and more than half of the firm's supervised assets sitting in stickier SMA wrappers, we believe that Goldman Sach’s wealth management business is in enviable shape. It has grown its asset base at a nearly 15% compound annual growth rate since 2008 (Morningstar calculations, BCG estimates) and looks set for strong, high-single-digit growth for the foreseeable future, driven by market appreciation and modest organic inflows (the firm targets 5% annual organic inflows).

Finally, the platform solutions segment, largely composed of the remainder of the failed consumer bank initiative, is a capital-destructive—think negative moat—segment that’s in runoff mode. It is no longer financially material, and similar forays look prohibitively unlikely after this expensive experiment.

Taken together, Goldman Sachs looks to us like a wide-moat franchise, and our projected return profile aligns closely with that of wide moat competitors like JPMorgan and Bank of America. The investment banking business is less profitable but less risky than it has been historically, and the steady growth of capital-light, fee-generative businesses like third-party asset management and wealth management should diversify the firm’s revenue streams and render midteens through-the-cycle returns on equity achievable.

Investments in technology could drive the firm's compensation ratio to tick below its targeted 30% over time.

Private equity sponsors have roughly trillions of dollars in dry powder on their balance sheets, which could drive an M&A super cycle in a more accommodating investment environment.

Investment banking consolidation around a small group of scaled global banks with integrated institutional trading desks could drive the exit of large but subscale peers and significant share gains.

Trading revenue has been elevated for some time and could reset significantly lower in a risk-off or low-volatility environment.

A significant fallout in private credit markets could represent an opportunity cost for Goldman, which is still seeking to grow its private credit book to north of $300 billion in AUS.

Subsequent banking regulation could increase risk-weighted assets, capital requirements, or otherwise disadvantage traditional banks at the expense of more lightly regulated foreign competitors or nonbank financial institutions.