摩根士丹利

Morgan Stanley reported second-quarter earnings results that did not disappoint, with revenue of $21.3 billion growing a striking 27% from the year-ago period, while $3.46 in diluted EPS swelled 58%. Like its peers, the firm saw surreal growth in investment banking (up 58%) and trading (up 48%).

Why it matters: The key story from earnings is outstanding investment banking and trading results, and there's plenty of debate over their durability, with banks making money hand over fist amid client demands for liquidity and near-constant portfolio repositioning. Still, we see little in the near term that would point to a significant decline in activity — even a meltdown in the AI trade would drive at least a short-term surge in trading volume and profits, for example. To contextualize the magnitude of trading performance, we now expect 42% growth in equity trading revenue for 2026, up from the 6% projected growth at our last update. These are truly absurd results that banks' trading desks are producing. We still view trading revenue growth in the mid-single-digit annualized range as the appropriate long-term number, which points toward a massive moderation at some point during the 2027-35 period.

The bottom line: As we digest second-quarter earnings, we've raised our fair value estimate for wide-moat Morgan Stanley to $184 from $165. The lion's share of this change is tied to our revised projection for nearly 28% growth in the trading business—and 640 basis points of margin expansion—in 2026, up from 6% and 320 basis points, previously. A subsidiary driver was stronger than anticipated asset growth in the firm's wealth management business, which quietly produced 8% annualized growth in net new assets during a seasonally quieter quarter on the back of robust IPO market performance, validating the integrated firm strategy and highlighting the importance of the bank's workplace business.

We see two main ways in which our thesis could be wrong about Morgan Stanley. On the bullish side of the ledger, the Wall Street banks are increasingly trading in line with the AI trade due to unprecedented demand for financing—both in equity and debt markets—that could drive a durable, medium-term tailwind for investment banks. Few boutique banks boast the global reach, distribution capabilities, and depth of institutional relationships that marquee investment banks like JPMorgan, Goldman Sachs, Morgan Stanley, Bank of America, and Citigroup do, so it would be no surprise to see them take an increasing share of the incremental financing revenue tied to a generational AI infrastructure buildout if momentum continues to accelerate. CEO Ted Pick estimated that we'd be about 10%-15% into a $10 trillion AI infrastructure build on the analyst call, and as hyperscalers shift from funding growth with cash flow toward capital markets, this could provide an investment banking fee tailwind that we underappreciate, making our $184 revised valuation look quite conservative—particularly with our wide-moat Nvidia analyst calling for annual expenditures on AI infrastructure exceeding $3 trillion annually, globally, by 2030.

On the other hand, our forecasts could prove quite aggressive if the AI trade started to unwind, either due to concerns regarding the ethereal sums being spent on an infrastructure buildout that could result in slim return on investment if model routing and the proliferation of XPU chips drive utilization costs down sufficiently (this seems increasingly likely) or if the tools struggle to drive the anticipated benefits to corporations and enterprises which adopt them, curtailing adoption and enterprise spending appetite. The latter looks less likely to us at this stage, although the market is evolving very quickly. In the latter case, a quick decline in capital raising would immediately impact investment banking results, while declining equity market valuations would have negative impacts on the prime brokerage business as clients took in leverage, on the trading businesses, which generate some chunk of revenue as a proportion of notional value, and on the wealth management business, with potentially significant declines in client assets and asset-based fees.

With this significant range of potential outcomes, we're reasonably comfortable with our $184 valuation and forecasts that sit somewhere in the middle, leaving shares trading at about a 20%-25% premium at July 15 intraday prices. With the market tending to extrapolate outstanding results in the cyclical and mean-reverting investment banking and trading industries too far into the future, this is where we would expect to land at this stage in the cycle, and we'd encourage investors to await a more attractive entry point for this high-quality name.

We maintain a $184 per share fair value estimate for Morgan Stanley, which corresponds with a 2026 price/earnings multiple of 14.3 times and a 2026 price/tangible book value multiple of 3.9 times.

Overall, we're reasonably constructive regarding Morgan Stanley's five-year outlook, with our forecasts contemplating a 6.6% compound annual growth rate in post-provision net revenue between 2026-30. Most of that is driven by the wealth business, where we expect the firm to grow its client asset base at a 9.8% compound annual growth rate between 2026-30, split about 50%/50% between organic net new asset growth and market appreciation. While we're constructive regarding the potential for technology investments to drive lower compensation ratios at the big banks, our concerns regarding peak cycle earnings in the trading business lead us to forecast slight efficiency ratio degradation between 2026-30, with our forecast calling for an efficiency ratio of 70.4% in that year, still broadly in line with company targets for a 70% or better operating efficiency ratio over the long term but 160 basis points worse than the firm generated in 2025. Taken together, this drives a midterm compound annual growth rate of 5.5% in operating profit over that period.

The key valuation drivers for the firm are growth in net new assets, market appreciation in the wealth and investment management businesses, firmwide efficiency ratio, and projected leverage. Long-term revenue growth in trading and investment banking is also important, but those lines are subject to wild annual swings. We project a through-the-cycle annual geometric growth rate of 1.8% in investment banking and 3.1% in institutional trading and financing over the next half-decade.

We believe that Morgan Stanley has a wide Morningstar Economic Moat Rating, built around switching costs in its high-net-worth wealth management franchise and intangible assets in its global investment banking operations. The firm has evolved significantly since the nadir of the global financial crisis, reincorporating as a bank holding company, diversifying its funding base, and derisking its trading operations. Most importantly, the firm has expanded its stable, fee-generating revenue base to roughly 55% of sales over the past three years. In our view, Morgan Stanley has emerged significantly stronger than its pre-global-financial-crisis vintage, and should generate midteens returns on equity through the cycle, comfortably north of our estimated 9.5% cost of equity for the firm.

Considering Morgan Stanley's segments in sequence, we believe that the company's wealth management business warrants a wide moat rating, qualitatively justified by switching costs on both the financial advisor and high-net-worth client sides of the ledger. This view is supported by the firm's generally affluent clientele, strong client retention ratios, and Morgan Stanley's status as a premier asset gatherer in an attractive wealth management vertical, features which together underpin durable, mid- to high-20% segment returns on equity.

Briefly outlining switching costs, financial advisors, which sit on one side of the ledger, tend to be reluctant to leave their current firm for two key reasons: retraining on a new set of systems and products (requiring significant time investment) and the involuntary loss of just shy of 20% of client assets on average during a transition (per research done by Cerulli). On the other side of the ledger, high-net-worth clients are reluctant to shuffle around between wealth management providers (particularly at higher income strata), due to lost product access and the need to absorb costly tax hits when unwinding structured products, alternative assets, proprietary fund holdings, and/or any securities that aren't available with a new custodian (where relevant).

Similar to software companies, we believe client stickiness increases in the volume and complexity of products that clients utilize with their wealth manager, such that a high-net-worth individual that uses financial planning, tax and estate planning, proprietary alternative investments, private bank loans, tax loss harvesting overlays, or structured notes is much less likely to leave their provider than a retail investor with $250,000 in assets that invests predominantly in liquid funds, ETFs, or equity securities that are universally available. With 99% reported retention among clients with more than $1 million in assets, and with an average of $1.2 million in assets per client, by our math, we believe that Morgan Stanley's wealth management arm skews toward a wide, rather than a narrow moat.

Our final point in favor of a wide moat designation for the wealth franchise is Morgan Stanley's position as a premier organic asset gatherer. While the firm's $9.3 trillion in client assets at year-end 2025 across its wealth management, self-directed brokerage, and investment management arms are indicative of past success, placing the firm well ahead of wirehouse competitors like Bank of America ($4.8 trillion) and Wells Fargo ($2.5 trillion), strong organic inflows have generally been an important leading indicator of future performance. Over the past decade, the firm has generated strong organic net inflows of 6%-7% annually, comfortably ahead of Bank of America's 1%-2% annual growth and Wells Fargo's 1% annual decline.

Pivoting to investment banking and institutional trading, we believe Morgan Stanley has carved out a durable competitive edge around its brand and global distribution capabilities, particularly in equity underwriting, which has rebounded strongly in 2026 after a significant lull during 2022-24. In this vertical, Morgan Stanley finished second in the 2025 league table. The firm is also quite competitive in M&A advisory, the most attractive investment banking niche, finishing third, behind only JPMorgan Chase and Goldman Sachs (based on research from Dealogic). Quantitatively, our view is corroborated by 14% average segment returns on equity over the past half-decade (with forward returns expected to be 17%-18% over the next decade), which, while weighed down by sluggish projected trading revenue growth, should be more than offset by a mix-shift toward higher-return investment banking and financing.

In investment banking, competition is based on reputation, prior performance, brand, league table rankings, research coverage, and distributional capabilities. This underpins a self-reinforcing cycle in which the largest global banks with global distribution consistently win the largest, most lucrative deal flow, which in turn attracts the most productive investment bankers who bolster those firms' execution capabilities and reputations. While boutique peers can compete ably in the middle market or for single-market deals, global reach and balance sheet capacity are prerequisites for competing for the most lucrative deal flow seeking access to global capital. This is best evidenced by most European issuers usually requiring the participation of a US investment bank to access US capital pools, a dynamic that favors JPMorgan Chase, Goldman Sachs, Morgan Stanley, and, to a lesser extent, Bank of America and Citigroup. It's no coincidence, in our view, that the five largest global investment banks also boast the largest institutional trading desks by revenue.

Finally, we believe a no-moat rating is appropriate for Morgan Stanley's investment management segment, given mediocre returns and the largest risk (if still small) of material value destruction, given its exposure to riskier private equity, private credit, real estate, and infrastructure through its alternative asset management portfolio.

The largest financial services firms could capture substantial market share on the back of technology investments in areas like underwriting, pricing, due diligence, and customer service.

An AI investment cycle could prove larger and last longer than we expect, resulting in a significant, durable increase in financing demands and investment banking revenue growth.

A changing regulatory climate could provide significant upside for banks, driving some combination of higher M&A activity, capital returns to shareholders, or reinvestment in growth.

Equity underwriting volumes could remain perpetually lower, given the high costs of being a public company, disproportionately impacting equity underwriting leaders like Morgan Stanley.

Protectionist trade policy could result in slower global growth and capital markets activity, to the detriment of large global trading and investment banks.

Many banks have tried to increase cross-selling and organization across business units, but few have succeeded. Failure of the integrated firm strategy could render long-term financial targets out of reach.