GS Earnings Preview: How much upside is there in 2025?

Goldman Sachs is set to report its Q4 earnings before the market opens on Wednesday, January 15. Analysts expect adjusted earnings per share (EPS) of $8.21 and revenue of $12.37 billion, representing a 2.40% quarter-over-quarter increase. Net income is projected at $2.71 billion, with a return on equity of 9.98%.

Goldman has consistently outperformed earnings expectations, beating estimates for the last four quarters. However, questions linger over its valuation, given the stock's strong performance in 2024. Analysts remain moderately bullish, with a consensus “Moderate Buy” rating and a price target of $605, reflecting a modest upside potential of 5.7%.

Market participants view the potential relaxation of regulations as a key catalyst for Goldman, as it could open capital markets and further bolster its investment banking and management divisions. While expectations for Q4 remain optimistic, some analysts are cautious about the rich valuation following 2024’s rally, with attention on whether Goldman can sustain growth momentum amid evolving market and regulatory dynamics.

At it's banking conference in early December, CEO David Solomon and CFO Denis Coleman highlighted optimism for 2025, anticipating investment banking activity at or above 10-year averages, with strategic M&A activity expected to accelerate. The CFO noted opportunities for incremental growth across key businesses, plans to return excess capital to shareholders, and increased investments in technology, particularly artificial intelligence. While the bank sees opportunities in the crypto market, participation remains constrained by regulatory structures, though it may consider entering bitcoin or Ethereum markets if permitted. On trade, Solomon expressed concerns about potential market reactions to new tariffs but was optimistic about working with the incoming Trump economic team and a more constructive regulatory environment. Debt capital markets were described as "wide open," offering further growth potential.

In late November, HSBC downgraded Goldman Sachs from "Buy" to "Hold," citing diminished risk-reward profiles after substantial stock rallies despite maintaining a constructive view on the company's fundamentals. HSBC raised its 2026 EPS estimates for GS by 7% above consensus, reflecting expectations of higher investment banking and asset/wealth management fees, along with buybacks. However, the firm argued that the current valuation already prices in a strong capital markets recovery and projected further growth in investment banking fees, making additional upside less compelling. HSBC also noted that while cyclical and secular tailwinds should support higher investment banking revenues, expectations of a supercycle in fees driving shares much higher are unsustainable, particularly given the significant recovery already reflected in GS's share price.

Goldman Sachs reported strong Q3 2024 results, with EPS of $8.40 significantly exceeding the consensus estimate of $7.31 and last year’s $5.47. Revenue came in at $12.70 billion, also surpassing estimates of $11.77 billion, driven by robust investment banking revenue, which surged 20% year-over-year to $1.86 billion. Equity and debt underwriting revenues were particularly strong, growing 25% and 46%, respectively, while equities trading revenue of $3.50 billion beat estimates by 18%. Fixed income, currencies, and commodities (FICC) sales and trading matched expectations at $2.96 billion. Despite progress, Goldman’s ROE and ROTCE, at 10.4% and 11.1%, remain below its medium-term targets.

Key drivers included a rebound in investment banking activity, improving equity and debt underwriting, and strength in asset and wealth management, which saw assets under management grow 16% year-over-year to $3.1 trillion. Net interest income surged 70%, reflecting higher interest rates. Goldman also benefited from strategic adjustments, including exiting underperforming consumer businesses, which reduced headline risk and allowed greater focus on core capital markets activities. However, the firm reported a $559 million pre-tax loss in its Platform Solutions segment, underlining the challenges in that area.

Analysts are watching several areas closely. Goldman’s deal backlog climbed, reflecting pent-up client demand, but CEO David Solomon noted that equity and M&A volumes remain below 10-year averages, suggesting room for further recovery. Asset and wealth management margins, while improving, are still not meeting long-term targets. Regulatory concerns persist, particularly as Goldman navigates competition for talent and inflationary pressures while driving efficiency improvements. Analysts have also tempered short-term EPS estimates due to seasonality but remain positive on 2025 growth potential, supported by strong backlogs and expected alternatives fundraising exceeding $60 billion.

Looking ahead, analysts believe Goldman is well-positioned to capitalize on a favorable capital markets backdrop, driven by lower interest rates and improved market sentiment. However, challenges in hitting medium-term ROE and ROTCE targets and regulatory uncertainties remain hurdles. Goldman’s focus on core strengths and strategic investments, particularly in asset and wealth management and alternatives, is expected to deliver incremental growth, with most analysts raising price targets and expressing optimism for 2025 and beyond.