HSBC downgrades Goldman Sachs, Morgan Stanley on limited upside after rallies

Investing.com -- HSBC downgraded Goldman Sachs Group Inc (NYSE:GS ) and Morgan Stanley (NYSE:MS ) to "hold" from "buy," as it sees limited upside after significant rallies in both stocks.

The firm raised its price targets to $608 for Goldman Sachs and $131 for Morgan Stanley while noting that the recent gains have elevated expectations and created a higher bar for performance.

However, analysts at HSBC remain optimistic about the fundamental outlook for both brokers, increasing their 2026 earnings per share (EPS) estimates by 7% for Goldman Sachs and 10% for Morgan Stanley, driven by strong investment banking and wealth management fee growth.

“We are even more positive today on fundamental outlooks and raise EPS estimates for both GS and MS to incorporate higher investment banking (IB) and asset /wealth management fees and much higher buybacks,” wrote analyst.

HSBC cautioned that the stocks' substantial rallies, 78% in the last year for Goldman Sachs and 29% since last year’s September for Morgan Stanley, leaves less attractive risk-reward profiles.

The report highlighted that while cyclical and secular tailwinds could boost investment banking fees, valuations already reflect robust growth assumptions. HSBC warned that overly optimistic expectations for a sustained investment banking "supercycle" could lead to disappointment, particularly as comparables become tougher in 2025.

Goldman Sachs and Morgan Stanley were trading at premiums to their historical averages, with HSBC signalling only marginal upside potential of 1% and a downside of 3%, respectively, consistent with the new "hold" ratings.

Source: Investing.com