During Mad Money’s August 6 episode, host Jim Cramer highlighted why investors should target elite advisory firms rather than speculating on acquisition targets, as he said:
Here’s a big theme that right now really only impacts two large companies: pent-up demand for mergers and acquisitions now that the Biden era of overzealous antitrust enforcement has been replaced by the Trump era of almost non-existent antitrust enforcement. Most companies don’t believe this moment can last, so they’re taking advantage of it to make deals. When the summer’s over, I believe we’re going to come back to see some blockbusters that are on the order of that rumored AstraZeneca bid for Bristol Myers or Stripe for a real bid for PayPal. I know the targets in these cases may not be interested in merging, but the potential acquirers, oh man, they’re all set. They seem very interested, and I think they’re willing to pay up.
How do you play this merger mania? Not by picking potential targets. That’s a sucker game. Instead, you should buy the stocks of the companies that enable these deals. And well, why not Goldman Sachs and Morgan Stanley, both of which have terrific M&A departments? This M&A advisory business is a gold mine. We’re talking tremendous earnings per person and therefore, earnings per share.
Goldman Sachs: Advisory Dominance and Operating Execution
Goldman Sachs Group, Inc. (NYSE:GS) continues to demonstrate its position as the premier global M&A franchise, leveraging its institutional relationships to capture dominant market share in cross-border deal structuring. In its second-quarter 2026 financial results, Goldman Sachs delivered total net revenues of $20.34 billion, representing a 39% year-over-year increase and outperforming estimates by $3.94 billion. Net income surged 78% year-over-year to $6.63 billion, driving diluted earnings per share to $20.98, beating estimates by $6.44. The firm achieved an annualized return on average common shareholders’ equity of 23.5%.
Growth was led by the global banking and markets division, which generated $15.52 billion in net revenues, a 53% year-over-year expansion. Within this segment, investment banking fees jumped 55% year-over-year to $3.40 billion, propelled by accelerating M&A advisory fees, equity underwriting for corporate acquirers, and debt financing packages. During the second-quarter 2026 earnings conference call, Chairman and Chief Executive Officer David Solomon emphasized that dealmaking momentum has accelerated across key coverage sectors, citing expanding advisory pipelines and strong client engagement as corporations act on strategic imperatives.
Morgan Stanley: Institutional Scale and Advisory Monetization
Morgan Stanley (NYSE:MS) represents a complementary pillar in global deal execution, pairing a world-class advisory division with a high-margin wealth management engine that stabilizes firmwide cash flows. In its second-quarter 2026 earnings report, the company posted total net revenues of $21.35 billion, a 27% increase year-over-year. Net income applicable to common shareholders climbed 60% year-over-year to $5.44 billion, with diluted earnings per share of $3.46, exceeding estimates by $0.53. The firm delivered an annualized return on equity of 20.7% and a return on tangible common equity of 26.6%.
The firm’s institutional securities business segment led top-line expansion, generating $11 billion in net revenues, a 44% year-over-year increase. Investment banking revenues rose 58% year-over-year, driven by higher M&A advisory revenue along with heightened equity underwriting activity. Executive commentary from Morgan Stanley’s quarterly earnings discussions highlighted that advisory pipelines continue to build across technology, healthcare, and industrial verticals, supported by corporate sponsors eager to deploy accumulated cash reserves.
Smart Money Backs Both Investment Banking Leaders
Insider Monkey’s data tracking over 1000 elite hedge funds shows steady hedge funds backing for both investment banking leaders. In the first quarter of 2026, 83 hedge funds held positions in Goldman Sachs Group, Inc. (NYSE:GS), up from 78 funds in the fourth quarter of 2025.
Morgan Stanley (NYSE:MS) maintained firm institutional tracking across the same timeframe, with 80 hedge funds holding shares in Q1 2026, unchanged from the prior quarter.
Short interest across both firms remains low, indicating limited bearish positioning. Short interest in Goldman Sachs Group, Inc. (NYSE:GS) stands at 2.15% of its public float, while Morgan Stanley (NYSE:MS) carries an even lower short interest of 1.09%.
While we acknowledge the risk and potential of GS and MS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GS and MS and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: Jim Cramer Favors Fortinet (FTNT) Alongside CrowdStrike (CRWD) and Palo Alto (PANW) and Jim Cramer Examines PayPal Holdings Performance Under Enrique Lores and M&A Speculation.
Disclosure: None. Follow Insider Monkey on Google News.
