The financial sector is overdue for an overhaul, where technology implementation may shift the way everyone looks at banking and finance altogether. This time around, analysts at Wells Fargo have landed on one Wall Street leader looking to push the envelope further into the new revolution for the space, even calling it the "NVIDIA of banking" today due to its new exposure to quantum computing implementation for its trading and banking business.
[content-module:CompanyOverview|NYSE: JPM]Shares of JPMorgan Chase & Co. (NYSE: JPM) have come on the hot seat unexpectedly after this Wells Fargo take; implications of the bank now being able to rake in millions and millions more in trading revenue could also make them a target for hedge funds and prime brokers to trade under this new proprietary technology, which acts as a tailwind for upside in the coming months.
However, when investors zoom out, they will realize that JPMorgan also acts as a historical safe haven that investors like to flow into when the economy threatens to slow down.
Of course, the fundamentals are only realized when the technical setup also aligns, and the volatility breakouts in the S&P 500 might be enough to trigger this rotation today, a sign that will become obvious for investors in just a bit.
Safety Spreads, Favorable for JPMorgan Chase Stock
Over the past five years, which arguably covers an entire business cycle, investors can compare the performance of JPMorgan stock with that of other important peers in the industry, such as Goldman Sachs Group Inc. (NYSE: GS). The main difference between these two and their business models is what sets them apart in this risk-on or risk-off rotation.
Goldman Sachs derives more of its earnings and revenue from investment banking and corporate finance, making it infinitely more dependent on the credit and business cycle within the United States economy. Because of this, it has been considered a leading indicator of economic expectations moving forward.
JPMorgan, on the other hand, is more exposed to earnings coming from the commercial banking side, including consumer finance products and other conventional finance activities. This translates into a more defensive business, which shows in its price action.
Now that the S&P 500 has fallen into correction territory, investors can make sense of the performance spreads between the two banks. Over the past month, JPMorgan has outperformed Goldman Sachs by as much as 5%, which isn’t jaw-dropping. Still, it is enough to trigger further rotations in momentum funds.
Short Sellers Run From a New Quantum Development
Achieving truly random results through artificial intelligence, or in this case, quantum computing, is the mathematical equivalent of being able to trade every possible scenario at any given moment. What this means for Wall Street, specifically those who rely on discretionary human trading, is futile.
JPMorgan and its trading department reported a record annual profit in 2024, as reported by their latest quarterly financial figures. While investment banking had its fair share of the action, sales and trading revenue brought in the bank’s windfall, reporting a net growth rate of up to 21%.
[content-module:MarketRank|NYSE: JPM]These results raise the question of whether this new technology had already been implemented before Wells Fargo’s piece broke it down and whether this outperformance will become the norm moving forward for the bank, which could undeniably boost its underlying earnings per share (EPS).
Understanding that this company-specific tailwind also sits atop the fundamental rotation benefit during a volatile stock market (like today’s) leads to the conclusion that JPMorgan stock might be the best buy in the banking peer group today.
For investors in need of further evidence, the market’s subtle message also reiterates this story for JPMorgan stock, which now trades at a forward price-to-earnings (P/E) ratio of 12.8x. This valuation matters because of where it stands relative to other peers in the space, including Goldman Sachs and even Bank of America Co. (NYSE: BAC).
Some argue that this premium valuation calls for additional downside, though seasoned traders and investors would remind them that the market always has a good reason to overpay for certain stocks as long as the underlying story justifies the premium.
In the case of JPMorgan Chase, the story does seem to line up and justify the potential rallies that the market is now implying could come for the bank’s stock in the coming months and quarters.
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