Is Morgan Stanley Worth Buying at 34.5% Gains? Here's What You Need to Know

Morgan Stanley stock has delivered impressive returns—up 34.5% year-to-date and outpacing both the broader market and the finance sector. But should you jump in now, or wait for a better entry point? Let’s break down what’s really driving this rally.

The Real Growth Story: Beyond Trading Commissions

For years, investment banks lived and died by trading revenues. Morgan Stanley is quietly shifting that playbook. The company’s wealth and asset management operations now account for over 53% of revenues in 2025, compared to just 26% back in 2010. That’s not accident—it’s strategy.

The acquisitions of Eaton Vance, E*TRADE Financial, and most recently EquityZen signal clear intent: build a business that thrives across market cycles, not just when volatility spikes. This diversification is paying off. The Wealth Management segment has grown client assets at an 18.1% annual rate over five years, while Investment Management’s assets under management expanded 24.7% annually. Both trends accelerated through the first nine months of 2025.

What does this mean for you? Stable, recurring revenues from managing client money are more predictable than the boom-bust cycle of trading desks.

Why the M&A Rebound Matters Right Now

The third quarter’s surge in mergers and acquisitions didn’t happen by accident. As companies navigate tariffs and geopolitical uncertainty, deal-making activity picked up significantly—and Morgan Stanley captured a disproportionate share. Asia operations alone jumped 29% year-over-year to $7.27 billion in the first nine months of 2025, driven by strong prime brokerage and derivatives demand.

And there’s more coming. The company’s partnership with Mitsubishi UFJ Financial Group is consolidating its position in Japan, while a recent collaboration with Zerohash will let E*TRADE clients trade cryptocurrencies starting mid-2026. These moves generate incremental trading spreads and advisory fees while keeping existing customers locked in.

The Numbers: Earnings Growth Meets Valuation Concerns

Analysts have gotten more optimistic. Consensus estimates for 2025 and 2026 earnings were revised up 3.6% and 2.6% respectively, now sitting at $9.76 and $10.32 per share. That translates to earnings growth of 22.8% this year and 5.8% next year.

But here’s where caution enters: Morgan Stanley is trading at a forward 12-month P/E ratio of 16.45X, meaningfully higher than the industry average of 14.43X. JPMorgan trades at 14.58X and Goldman Sachs at 14.99X. In other words, you’re paying a premium for Morgan Stanley stock compared to peers.

The Capital Return Story: Dividends and Buybacks

Morgan Stanley just raised its quarterly dividend 8% to $1.00 per share following the stress test clearance, and reauthorized a $20 billion buyback program. Over the past five years, the company increased its dividend with a 20.4% annualized growth rate. With $368.1 billion in average liquidity resources and only $25.4 billion of debt maturing in the next year, the balance sheet supports continued shareholder returns even if economic conditions deteriorate.

Still, rising operating expenses are a headwind. The company remains dependent on trading revenues, which fluctuate with market volatility. Stretched valuation also presents near-term downside risk if sentiment shifts.

The Investment Decision: Timing Matters

Morgan Stanley’s profitability is solid—return on equity of 16.4% beats the industry average of 12.54%, though JPMorgan (17.18%) and Goldman (15.29%) lead. The company’s structural improvements in revenue diversification are real. The M&A rebound provides tailwind for the next 12-24 months.

However, valuations suggest much of this positive outlook is already priced in. If you believe the deal-making environment stays strong and Morgan Stanley can execute on its wealth management expansion, current levels represent a reasonable entry. But if you prefer to wait for a better price, pullbacks to the 14-15X P/E range would offer a more attractive risk-reward setup. Either way, don’t ignore this stock—but don’t ignore the valuation either.