IPO & M&A Market Rebound: What it Means for Goldman's IB Business

Goldman Sachs' Global Banking & Markets division is capitalizing on a rebound in global deal-making, with investment banking fees up 8% year-over-year in H1 2025, led by a 16% increase in advisory revenues. The firm maintains its leading M&A position, benefiting from robust M&A and IPO pipelines, which are expected to remain strong through year-end 2025, partly due to favorable regulatory shifts. While competitors like Morgan Stanley saw modest IB growth, JPMorgan's IB fees rose 9%, similar to GS. Goldman's shares have outperformed the industry, gaining 27.7% YTD, with analysts projecting continued strong earnings and sales growth for 2025 and 2026, underpinned by upward estimate revisions.

Analysis

The Goldman Sachs Group (GS) is demonstrating robust performance, primarily driven by its Global Banking & Markets division, which constituted 69.4% of total net revenues as of mid-2025. The firm is capitalizing on a resurgence in global deal-making, evidenced by an 8% year-over-year increase in investment banking (IB) fees for the first half of 2025. This growth was led by a significant 16% rise in advisory revenues, underscoring the firm's leadership in M&A, while debt and equity underwriting saw more modest gains of 2% and nearly 1%, respectively. Comparatively, Goldman's IB growth outpaces Morgan Stanley's (MS) subdued 1% increase but is on par with JPMorgan's (JPM) 9% rise in IB fees. The outlook for the second half of 2025 appears favorable, supported by strong M&A and IPO pipelines, corporate demand for scale, and a more accommodative regulatory environment under the Trump administration. This positive sentiment is reflected in upward revisions to analyst estimates, with consensus forecasts pointing to double-digit earnings growth for 2025 (12.6%) and 2026 (14.9%). While the stock has outperformed its industry year-to-date with a 27.7% gain, it trades at a slight premium with a forward P/E of 14.64x versus the industry's 14.47x.

Key Decisions for Investors

• Given Goldman's strong IB performance, market leadership, and positive forward-looking catalysts, investors could consider the stock's slight valuation premium as justified by superior growth prospects and upward earnings revisions.
• Investors may wish to monitor the health of the M&A and IPO markets, as well as any concrete regulatory easing by the Federal Reserve, as these factors are critical underpinnings of the current bullish thesis for the firm's advisory business.
• A potential pairs trade could be considered, going long GS while shorting MS, to capitalize on the significant performance divergence in their respective investment banking divisions as detailed in the report.
• While GS shows strong momentum, investors should note that JPMorgan is a formidable competitor with comparable IB fee growth, particularly in debt underwriting, warranting a close watch on market share dynamics between the two leaders.