Crushing the Competition? Goldman Sachs Q3 Profit Surges 37%, Blowing Past Estimates in Stellar Earnings Beat

TradingKey - Wall Street banking giant Goldman Sachs Group (GS) reported its third-quarter earnings on Tuesday, with profits and revenues significantly exceeding market expectations due to a notable rebound in investment banking and trading activities, putting the firm on track for its best annual performance in the history of its investment banking and markets divisions. Goldman, known for its strength in investment banking, once again demonstrated its "Wall Street's top investment bank" credentials, with merger and acquisition advisory services this year being approximately five times that of the second-place competitor to date.

The report showed that Goldman Sachs' third-quarter net income increased 37% year-over-year to $4.1 billion, or $12.25 per share, significantly higher than the analysts' forecast of $11.03; meanwhile, revenue surged 20% year-over-year to $15.18 billion, marking the third-highest quarterly revenue record in the company's history.

Investment Banking Sets Records

Goldman Sachs' investment banking fee income surged 42% to $2.66 billion, significantly outpacing competitors such as JPMorgan Chase (16%) and Citigroup (17%). The growth was primarily driven by a 60% year-on-year increase in advisory fees and improvements in debt and equity underwriting businesses.

Behind this performance lies a global wave of corporations restarting merger and IPO plans.

Dealogic data shows that global merger and acquisition transaction volume exceeded $3.43 trillion in the first nine months of this year, with nearly 48% coming from the United States, and both global and U.S. average deal sizes reaching the highest levels since 2015.

Goldman Sachs executives revealed that the company has provided advisory services for $1 trillion in announced merger transactions to date, leading the second-place competitor by $220 billion.

Its signature deals include advising Electronic Arts (EA.O) on its $55 billion sale to a private equity consortium and Saudi Public Investment Fund; facilitating Holcim's (HOLN.S) spin-off of its North American business Amrize (valued at $26 billion); and advising Fifth Third Bancorp (FITB.O) on its $10.9 billion acquisition of Comerica (CMA.N), creating the ninth-largest bank in the United States.

During the quarter, Goldman also participated in underwriting several notable IPOs, including design software company Figma, Swedish fintech company Klarna, and space technology company Firefly Aerospace.

Asset and Wealth Management Business Shows Steady Growth

Goldman Sachs' asset and wealth management business revenue increased 17% year-on-year to $4.4 billion, marking the first quarterly growth for the division this year. The growth was primarily driven by record management fee revenue and expansion in private banking and lending businesses.

During the reporting period, the division's assets under supervision climbed to $3.45 trillion, pushing total management fees to a new historical high of 12%.

To further strengthen this area, Goldman Sachs recently announced a series of strategic acquisitions, including plans to acquire up to 3.5% of T. Rowe Price for $1 billion and to purchase risk investment platform Industry Ventures, which manages $7 billion in assets, for $665 million. The latter transaction is expected to be completed in early 2026, significantly enhancing Goldman's $540 billion alternative investment platform and expanding its presence in venture capital and private markets.

AI Efficiency Drives New Round of Layoffs

The surge in performance comes with cost pressures, particularly rising compensation expenses leading to a 14% increase in operating expenses to $9.45 billion. Goldman has already initiated internal adjustments, planning another round of layoffs this year. Senior management stated in a memo that the "reduction in positions will be limited," with more than 1,000 employees expected to be affected.

CEO Solomon, President John Waldron, and CFO Denis Coleman emphasized in a memo to employees that efficiency improvements driven by artificial intelligence will be a key path to further growth for the company.

"While we are still in the early stages of evaluating the best applications for AI solutions, it's clear that our operational efficiency targets must reflect the potential benefits brought by these transformative technologies. To fully benefit from the promise of AI, we need greater speed and agility in all facets of our operations," they wrote. "This is a moment for us to expand our 'One Goldman Sachs' ethos to our internal operating model."

Despite the strong earnings, Goldman Sachs' stock closed down 2.04% on Tuesday, though the company has gained over 51% in the past six months.