The first quarter was huge for mergers and acquisitions (M&A) as a raft of megadeals pushed the worldwide value of deals some 50% higher, year over year. Overall, it was one of the best quarters for deal-making in years.
No company benefited from this surge in M&A activity more than Goldman Sachs (GS +0.06%). Goldman Sachs is one of the leaders in global M&A, and it makes a higher percentage of its revenue from investment banking than its major competitors, JPMorgan Chase (JPM +0.24%) and Morgan Stanley (MS 0.15%). So when M&A is hot, Goldman Sachs' revenue typically soars.
That was the case in the first quarter, as Goldman Sachs had blowout earnings. Revenue jumped 14% year over year and 28% from the fourth quarter to $17.2 billion. Net income surged to $5.6 billion, or $17.55 per share, up 24% year over year and 25% from Q4, crushing analystsʻ estimates.
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Goldman Sachs got the biggest boost from its investment banking business, which saw revenue spike 48% year over year to $2.84 billion -- more than analysts expected. About $1.49 billion of that came from the advisory business, fueled by the surge in M&A activity.
Backlog at four-year high
Over the past month, Goldman Sachsʻ stock price has gained about 7% to reach about $953 per share. Investors bought in on the strong results and the robust backlog of deals in the pipeline.
On the Q1 earnings call, Goldman Sachs CEO David Solomon said that the backlog of M&A deals is at its highest level in four years, and he doesnʻt see it slowing down, despite geopolitical tensions.
NYSE: GS
Key Data Points
"As I talk to CEOs, of course, they're watching what's going on geopolitically," Solomon said on the Q1 earnings call. "But that's also balanced by the fact that they see an opportunity during this period of time to drive scale and scale creation in businesses with significant technological change, and they are focused on that. And that candidly trumps some of the geopolitical risk."
With interest rates expected to decline in 2026, and a more favorable regulatory environment, M&A should remain robust.
"M&A cycles tend to be predictable and typically last six to seven years," Tim Ingrassia, co-chairman of Global Mergers & Acquisitions in Goldman Sachs Global Banking & Markets, said in a recent analysis. "We're in year four, and while it's not impossible, it's really, really hard to interrupt the momentum of the cycle."
While there have been significant concerns about weakness in the private credit markets, Solomon said that Goldman Sachs is insulated from some of the stresses there because most of its funding is from large institutional partners.
"You obviously saw our positive inflows of what we raised privately in the quarter, we feel we're very well positioned and actually the opportunity set to some degree, is improving," Solomon said on the call.
Goldman Sachs stock is up about 9% year to date, and it has a reasonable forward price-to-earnings (P/E) ratio of 15, with slightly lower valuation metrics than Morgan Stanley's.
Combine that valuation with the continued strength expected in M&A, and Goldman Sachs certainly looks like a stock to hold with the potential for some decent upside -- although macroeconomics factors could keep its returns muted.
