The Tax Reform's Hidden Opportunity: Why Charitable Giving Deductions Could Boost Nonprofit Stocks Now

The newly enacted One Big Beautiful Bill (OBBB) of 2025 has introduced a seismic shift in U.S. tax policy, with far-reaching implications for nonprofits and the sectors they support. At its core, the law's above-the-line deduction for charitable contributions—allowing up to $1,000 for individuals and $2,000 for joint filers starting in 2026—is designed to democratize tax incentives for charitable giving. This provision, combined with new floors for itemized and corporate deductions, could reshape philanthropy's landscape and create a tailwind for nonprofit-linked enterprises. For investors, the timing is ripe to position ahead of this transformation.

A New Era for Charitable Giving

The OBBB's above-the-line deduction is a game-changer because it extends tax benefits to non-itemizers—approximately 90% of taxpayers—who previously had no incentive to donate to charity. By simplifying the tax advantage, the reform aims to boost participation in charitable giving, particularly among middle-income households. Historical precedents suggest this could work: after the 2018 Tax Cuts and Jobs Act (TCJA) capped itemized deductions, charitable donations dipped by 10% in real terms. The OBBB's reversal of that trend—by reintroducing a universal deduction—could reverse that decline.

The Multiplier Effect on Sectors and Stocks

Nonprofits in education, healthcare, and social services stand to gain the most. For instance, donations to hospitals or universities could rise, indirectly benefiting for-profit partners. Consider healthcare: nonprofits like Boston Children's Hospital may expand facilities or services, creating opportunities for healthcare providers (e.g., lab services, construction firms). Similarly, education nonprofits could partner with edtech companies to scale programs.

The direct beneficiaries, however, are likely to be companies that support nonprofits' operations. Blackbaud (BLKB), a leading provider of software and payment solutions for nonprofits, is a prime example. Its tools help organizations manage donations, grants, and data—critical as nonprofits prepare for the influx of donors.

BLKB's revenue grew at a 12% CAGR from 2019 to 2022, outpacing its peers. With the OBBB's provisions set to increase demand for its services, BLKB could see accelerated growth as nonprofits modernize their fundraising strategies.

Strategic Sector Plays: Beyond BLKB

The reform's ripple effects extend to other sectors. In healthcare, HCA Healthcare (HCA)—which operates hospitals and relies on community donations—could see higher funding for specialized care. Meanwhile, Charles Schwab (SCHW), which administers donor-advised funds (DAFs), may benefit as donors use DAFs to maximize deductions, particularly under the new 1% AGI floor for corporate contributions.

Tactical Investment Strategy: Timing the Opportunity

The OBBB's effective date of 2026 creates a clear timeline for investors. Nonprofits are already preparing for the change, with many launching education campaigns in 2025. This anticipation could drive stock prices higher now, as companies like BLKB and HCA adjust their strategies to capitalize on the coming boom.

Entry Point Recommendation: Investors should consider accumulating positions in BLKB and sector-linked stocks by early 2025. Valuations for BLKB are currently reasonable, with a P/E ratio of ~28—lower than its 5-year average of 33—despite strong fundamentals. Meanwhile, HCA's P/E of 15 offers a margin of safety, supported by its diversified revenue streams.

Risks and Considerations

The OBBB's corporate deduction floor (1% AGI) could pressure some companies to “bunch” donations, potentially causing volatility in nonprofits' funding. Additionally, the projected $41–61 billion reduction in charitable giving due to caps on high-income itemized deductions could offset gains. However, the above-the-line deduction's broad reach likely outweighs these risks, especially for companies serving diverse donor bases.

Conclusion

The OBBB's charitable deduction provisions are a catalyst for sustained growth in nonprofits and the sectors they influence. Investors who act now—targeting companies like Blackbaud and healthcare leaders like HCA—can position themselves to capture this underappreciated opportunity. As nonprofits pivot to engage new donors, the stocks that enable and benefit from this shift are primed to outperform. The time to act is now, before the 2026 implementation triggers a surge in activity—and prices.

Investment Thesis: Buy BLKB and HCA on dips below $60 and $190, respectively. Monitor for signs of increased donor engagement (e.g., Q4 2025 fundraising reports) to confirm the trend.