Capital Craft
In this edition of the Smart Investor newsletter, we take a closer look at the stock of one of America’s most balanced financial powerhouses. But first, let’s dive into the latest portfolio news and updates.
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Portfolio Updates
❖ Salesforce (CRM) shares slid post-earnings despite beating expectations, raising revenue guidance, and forecasting a strong second quarter. These positives were overshadowed by its announced $8 billion acquisition of data management firm Informatica – a move aimed at bolstering CRM’s AI strategy.
Analyst reactions were mixed. Stifel upgraded Salesforce to “Buy,” citing AI-driven growth and the strategic value of tools like Agentforce and Data Cloud. Morgan Stanley reiterated its “Buy” rating and raised its price target to $404, implying over 50% upside.
In contrast, RBC Capital downgraded the stock, pointing to acquisition risks and uncertain synergies. RBC and others noted that Salesforce’s prior acquisitions often suffered from slow integrations and questionable payoffs. In 2023, activist investors pushed back on Salesforce’s M&A strategy, urging tighter focus on profitability and discipline around large deals. The company has since pulled back on aggressive deal-making, favoring acquisitions tightly aligned with its long-term goals.
Salesforce insists that Informatica will be earnings-accretive by the second year, but will need to provide proof to convince skeptics. That said, CRM is far more profitable today and has significantly more cash than during its earlier M&A spree – so this time, the deal could unfold more smoothly.
❖ Another stock that suffered a post-acquisition sell-off is Leidos Holdings (LDOS), one of the most recent Smart Portfolio additions. The largest U.S. government IT contractor announced the $300 million cash acquisition of Kudu Dynamics, a specialist in AI-enabled cyber capabilities. The deal is expected to significantly expand LDOS’s cyber offerings, aligning with the company’s strategy to position cyber as a key growth driver. However, the announcement sparked concerns about integration risks.
Baird downgraded the stock to “Hold” from “Buy” last week, citing a challenging booking environment and increased uncertainty in the federal contracting space. Still, shares rebounded sharply on Tuesday, as investors reassessed the acquisition’s strategic merit and other analysts reaffirmed “Buy” ratings, emphasizing Leidos’ long-term positioning in cyber defense.
❖ Broadcom (AVGO) has begun shipping its latest networking chip, Tomahawk 6, doubling the performance of its predecessor to meet the escalating demands of AI data centers. Utilizing Ethernet protocols and chiplet technology, the Tomahawk 6 enhances energy efficiency and reduces the need for multiple switches. Manufactured with Taiwan Semiconductor’s (TSM) advanced 3-nanometer process, this chip is designed to support large-scale AI infrastructures, potentially connecting up to a million GPUs in future data centers.
In other company news, AVGO has seen its stock rise sharply over the past week as a slate of analysts voiced their support, considerably raising Broadcom’s price targets heading into earnings on June 5. Leading Wall Street brokerages believe that AVGO is one of the “must-own” AI stocks, saying its products are critical for hyperscaler and other large tech AI buildout and scaling.
❖ TSMC (TSM) reported that AI chip demand continues to outpace supply, despite U.S. tariffs, with little observed impact to customer ordering patterns. TSMC anticipates its AI-driven revenue will double in 2025, fueled by continued expansion in large language model training, edge AI adoption, and custom silicon orders from hyperscalers.
In other company news, Taiwan Semiconductor Manufacturing is reportedly evaluating building an advanced production facility in the United Arab Emirates, a possibility it has discussed with Trump administration officials.
❖ Microsoft (MSFT) has landed a major AI partnership with Barclays. The UK financial giant has agreed to purchase 100,000 licenses for MSFT’s Copilot AI assistants, joining a growing list of global large caps that have bought 100K+ licenses. Giants like Accenture, Toyota, Volkswagen, and Volkswagen have already struck similar deals with Microsoft, signaling significant progress in the adoption of its AI tools by corporate clients.
In other news, Microsoft said it will invest $400 million in Switzerland to upgrade for its four data centers located near Geneva and Zurich. The company said this investment is warranted as AI demand in the area has increased, specifically for locally stored data usage in AI tasks.
❖ Uber Technologies (UBER) saw its stock decline after Tesla announced plans to launch its robotaxi service in Austin, with a tentative launch date of June 12. Tesla has been promising robotaxis for several years and now appears ready to start delivering. Uber is not new to autonomous vehicles: it has offered rides via Alphabet’s (GOOGL) Waymo in Phoenix since 2023 and recently expanded the partnership to Austin and Atlanta.
Tesla is therefore emerging as a direct competitor to both Uber and Waymo – but its service has yet to match the safety milestones already achieved by Waymo, which sets a high bar for the EV maker. Uber operates AVs through partnerships and has publicly expressed openness to partnering with Tesla – although some analysts remain skeptical of Tesla’s safety features. For now, with Tesla’s robotaxi still in early rollout, it poses no immediate threat to Waymo, a seasoned AV operator with a significant on-road presence.
Analyst sentiment on Uber is mixed. While Wedbush sees Tesla’s robotaxi service as a long-term threat to Uber’s business model, many analysts disagree. The consensus rating on Uber remains “Strong Buy.” Meanwhile, BMO Capital stated that Uber’s underperformance following the robotaxi announcement was expected, and that at current levels, the stock is strongly oversold. BMO pointed to several positive – if not explosive – catalysts, including international expansion, growing AV adoption, and continued innovation across both Mobility and Eats segments.
❖ Alphabet (GOOGL) and the U.S. Department of Justice concluded closing arguments Friday in the remedies phase of the landmark search antitrust trial. As a reminder, the DOJ argues that Chrome functions as a key distribution channel for Google’s search engine, reinforcing its market dominance. In 2024, the court found that Google maintains an illegal monopoly in the search market.
As a remedy, the DOJ has urged the federal judge to order Google to divest its Chrome browser, a move the company strongly opposes and has vowed to appeal. Google executives testified that Chrome is deeply integrated with the company’s infrastructure, and that replicating its success independently would be extremely difficult. Chrome is linked to over a third of Google’s search revenues and supports multiple other business lines. Although the probability of a forced divestiture remains low, some analysts estimate that losing Chrome could reduce Alphabet’s EPS by as much as 30%.
Meanwhile, Goldman Sachs analysts argue that Alphabet’s current valuation already reflects negative investor sentiment, creating a compelling risk/reward setup and room for the stock to rebound as the company executes its long-term strategy. In addition, analysts point out GOOGL’s multiple growth catalysts and note its already wide reach in AI, with the large network of data centers and cloud tools expected to support its long-term AI and digital growth plans.
❖ CrowdStrike Holdings (CRWD) is expected to give up some of the large gain it logged in in the days before last night’s earnings report. The cybersecurity leader’s stock futures turned sharply lower after it reported strong Q4 FY25 results but issued tepid guidance, disappointing high investor expectations.
CRWD delivered a solid quarter: FQ4 2025 revenue rose 25% YoY (although slightly below the consensus), driven by strength in subscription revenue which crossed $1 billion for the first time. Non-GAAP EPS came in at $1.03, considerably above expectations. Annual recurring revenue (ARR) ended at $4.24 billion, up 23%, with net new ARR of $224 million. Operating income, free cash flow, and gross margins all remained strong, with full-year free cash flow topping $1.07 billion. The company announced a share repurchase authorization of up to $1 billion.
However, it was the FY26 guidance that underwhelmed. Management forecast full-year revenue of $4.74-4.81 billion, penciling in a modest ~21% growth from FY25’s $3.95 billion at the midpoint, and slightly below some bullish analyst estimates. EPS guidance of $3.33-3.45 was above the consensus but fell short of more optimistic projections (some had expected $3.50+). Q1 FY26 guidance for revenue ($1.10B midpoint) and EPS ($0.65 midpoint) was also seen as conservative given recent momentum.
In fact, investors seem to have priced in accelerating platform adoption and AI-fueled growth. Despite impressive progress in areas like SIEM (LogScale up 115% YoY), cloud security (+45%), and identity protection (+20%), the guidance failed to justify CRWD’s premium valuation. In short: the business fundamentals remain robust, but the bar was probably too high.
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Portfolio Stocks Under Review
❖ We are keeping Verizon Communications (VZ) under review, though the recent approval of its $20 billion acquisition of Frontier Communications adds a new, potentially positive variable to the equation. While Verizon’s fundamentals remain stable, and the company continues to deliver strong operational results, the broader market context and competitive landscape are evolving in ways that merit close monitoring.
Verizon reported solid first-quarter results in April, including better-than-expected revenue, record adjusted EBITDA, and robust free cash flow. At that time, equity markets were still weighed down by tariff-related uncertainty, and defensive, dividend-rich names like Verizon attracted capital for their perceived stability. The stock’s 6.2% yield and consistent cash generation provided insulation from macro risk, allowing investors to look past Q1’s loss of 289,000 postpaid phone subscribers – a figure that reflected ongoing wireless price competition and churn pressures.
Since then, however, sentiment has shifted. The sharp rebound in growth and tech stocks – fueled by optimism around easing trade tensions and broader risk appetite – has triggered a rotation away from telecom and other defensive sectors. VZ shares have declined more than 3% since the beginning of May, a trend compounded by insider activity such as the sale of 9,000 shares by CEO Kyle Malady. While not concerning in and of itself, it has added to near-term investor caution.
At current levels, VZ trades at a forward P/E of 9.3 and a price-to-FCF multiple below its long-term average. However, with no immediate catalyst to re-accelerate subscriber growth or expand margins, valuation alone has not been enough to stabilize the stock in a market repricing toward innovation, infrastructure, and platform-driven growth.
That said, the FCC’s approval of Verizon’s Frontier acquisition could mark a turning point. The deal significantly expands Verizon’s fiber footprint – particularly in underserved and rural markets – and positions the company for long-term growth in bundled wireless and broadband services. Management expects meaningful operating synergies and has emphasized the infrastructure upside. In addition, the deal’s terms include a shift away from costly DEI programs, potentially improving cost structure without sacrificing execution.
We are holding the position under review as we assess how the Frontier acquisition translates into market sentiment and operational momentum. Verizon still offers income stability and financial strength, but we are watching closely to determine whether the company can reassert strategic relevance in a market increasingly focused on scale, innovation, and growth. We expect to revisit our stance once the integration path and investor response become clearer over the next few weeks.
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Portfolio Earnings and Dividend Calendar
❖ The Q1 2025 earnings season is drawing to an end, but one important Portfolio holding – Broadcom (AVGO) – is scheduled to post its fiscal Q2 2025 results tomorrow, June 5.
❖ The ex-dividend date for BlackRock (BLK) and Qualcomm (QCOM) is June 5, while for Alphabet (GOOGL) it is June 9.
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New Buy: Morgan Stanley (MS)
Morgan Stanley is a leading global financial services firm with a balanced business model spanning institutional securities, wealth management, and investment management. Through its extensive global footprint and integrated platform, the firm serves corporations, governments, institutions, and individuals with tailored capital markets, advisory, and asset management solutions. Its wealth management division plays a central role in serving high-net-worth and mass-affluent clients, while institutional services anchor Morgan Stanley’s presence in global trading, underwriting, and M&A. The firm’s investment management arm adds a growing base of long-term assets across public and private markets. With a focus on scale, technology, and risk discipline, MS is positioned as a systemically important institution that can navigate volatility while capitalizing on long-term secular trends in capital flows, financial digitization, and global wealth creation.
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Scaling the Street
Founded in 1935 as the investment banking arm of JPMorgan and re-established as an independent firm in 1941, Morgan Stanley has long been a fixture of Wall Street. It earned its reputation through decades of leadership in investment banking, capital markets, and M&A advisory, and has transformed into a diversified financial powerhouse over the past several years through a series of strategic moves.
The most pivotal chapter began in 2020, when MS acquired E*TRADE for $13 billion. The deal expanded its reach into direct-to-consumer brokerage, bringing access to a younger, more digitally native retail client base and adding roughly 5.2 million accounts. In 2021, it acquired Eaton Vance for $7 billion, nearly doubling its assets under management and significantly expanding its footprint in active investment management and customized portfolio solutions. These two back-to-back transactions reshaped the firm’s revenue mix and accelerated its evolution toward more stable, fee-based income.
Rather than pursue further large-scale M&A, Morgan Stanley has since focused on integrating acquired capabilities, modernizing its platform, and driving organic growth. It invested heavily in technology infrastructure across business lines – digitizing wealth management, enhancing AI tools for client insights, and expanding digital workflows for institutional trading and financial advisors. The firm also increased its use of alternative data and machine learning in trading and research, strengthening its position in electronic markets.
Leadership continuity has played a key role. In 2024, Ted Pick succeeded longtime CEO James Gorman. A veteran of the firm and former head of Institutional Securities, Pick has sustained Morgan Stanley’s strategic direction while reinforcing operational discipline and capital efficiency.
Through a mix of transformative acquisitions, internal investment, and disciplined execution, MS has repositioned itself as a top-tier financial platform with a diversified global footprint. Its model now spans self-directed brokerage to high-touch wealth planning, asset management to institutional trading – all underpinned by strong risk controls and brand strength. This evolution positions the firm to continue gaining market share across verticals while delivering resilient earnings through market cycles.
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Across the Capital Map
Morgan Stanley today operates as a three-engine financial platform – anchored in Institutional Securities, Wealth Management, and Investment Management – with each business offering exposure to distinct but complementary markets. This structure allows the firm to adapt across cycles and capitalize on opportunities in a shifting macro environment.
Wealth Management, now the largest contributor to the firm’s top line, generated approximately 46% of total revenue in 2024. This business has scaled meaningfully following the E*TRADE acquisition, benefiting from rising client inflows and strong fee-based growth. With total client assets approaching $8 trillion and a deepening focus on digital engagement, Morgan Stanley has positioned itself as a dominant player in high-net-worth and mass-affluent advice. Its platform supports everything from planning and lending to equity syndicate access – all under one roof.
Institutional Securities, historically Morgan Stanley’s core franchise, remains a force. It contributed about 41% of revenue in 2024 and continues to benefit from active capital markets, strong equity trading, and a rebound in deal activity. The firm’s fixed income desk has also been gaining share, helped by technology-driven execution and renewed volatility in global markets. These dynamics should persist as rate differentials, political cycles, and macro rebalancing continue to drive client activity.
Investment Management, the smallest of the three segments at roughly 13% of revenues, continues to grow steadily. The Eaton Vance integration expanded Morgan Stanley’s reach in both public and private markets, supporting growth in long-term asset mandates. Despite market fluctuations, net flows have remained positive – an indicator of franchise strength and client confidence.
Importantly, Morgan Stanley stands to gain from the anticipated relaxation of the Supplementary Leverage Ratio (SLR) rule later this year. The SLR is a regulation that limits how much leverage large banks can use by requiring capital to be held against all assets, including low-risk ones like Treasuries. While not as balance-sheet-intensive as other major U.S. banks, MS would still benefit from increased balance sheet flexibility. Easing the rule would expand the firm’s capacity for holding risk assets in its trading business, improve competitiveness in prime brokerage, and enhance capital allocation efficiency across its wealth and institutional segments.
The macro backdrop also presents multiple paths for upside. If interest rates remain elevated, Morgan Stanley benefits from wider interest spreads and continued demand for financial advice. If, as the firm forecasts, a mild recession prompts Fed rate cuts later this year, equities could rally – boosting asset valuations, trading activity, and flows across both wealth and institutional channels. A bullish S&P 500 forecast and sustained trading activity further reinforce the firm’s positioning in capital markets.
With a model that spans transactional and recurring revenue, and a reach that touches individuals, institutions, and global capital pools alike, Morgan Stanley is built to perform through multiple regimes. Its business mix, scale, and platform depth allow it to absorb shocks and grow strategically – whether markets are calm or chaotic.
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Loaded Ledger
Throughout 2024, Morgan Stanley steadily rebuilt momentum across businesses following a muted 2023 marked by subdued deal activity, market uncertainty, and tighter financial conditions. Revenues rose on the back of recovering capital markets, record asset levels in Wealth Management, and growing net flows in Investment Management. Full-year earnings reflected improved operating leverage and expense control, setting a strong foundation heading into 2025.
In Q1, that foundation strengthened. Total client assets in Wealth Management reached approximately $7.7 trillion, bolstered by $94 billion in net new assets – including $30 billion in fee-based flows. The asset management franchise also posted positive net flows, affirming long-term client confidence.
Each business line posted year-over-year growth, and the firm demonstrated a strong balance between cost discipline and platform investment. Net revenues reached a record $17.7 billion – up 17% YoY. All three core business segments contributed. Institutional Securities led with $9.0 billion in net revenues – a 28% increase driven by record equity trading and solid investment banking results, including an 8% rise in advisory fees and a 22% jump in fixed income underwriting. Wealth Management delivered $7.3 billion, up 6%, fueled by higher asset levels and continued growth in fee-based flows. Investment Management brought in $1.6 billion – a 16% increase, supported by positive long-term flows and higher market valuations.
On the bottom line, Morgan Stanley generated $4.3 billion in net income – up 26% YoY – and improved its expense efficiency ratio to 68%, despite incurring $144 million in severance costs tied to a March workforce reduction. Book value per share rose to $60.41, and the CET1 capital ratio under the standardized approach ended the quarter at 15.3%, with an SLR of 5.6%. Adjusted EPS rose to $2.60 – a 29% increase – while return on tangible common equity climbed to 23.0%, up from 19.7% a year earlier.
The firm also rewarded shareholders while maintaining strong capital levels and regulatory buffers. With investment-grade credit ratings of “A-” from S&P and “A2” from Moody’s, Morgan Stanley continues to operate with a solid balance sheet and a hybrid model that blends capital-light fee businesses with scale-driven institutional flow. Liquidity also remains robust, with over $388 billion in global liquidity resources and a Liquidity Coverage Ratio (LCR) above 120% – providing a meaningful buffer and flexibility to capitalize on market dislocations or fund growth.
While management did not issue formal guidance, it signaled continued strength across business lines, emphasizing market share capture, operating leverage, and strategic capital deployment. With rising deal activity, steady client engagement, and improving operating metrics, Morgan Stanley expects to sustain earnings power amid shifting macro conditions.
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Value with a View
Morgan Stanley’s stock has gained just over 30% over the past year – outperforming the S&P 500 by more than 2x and tracking closely with leading U.S. banks like Goldman Sachs, JPMorgan, and Bank of America. It has also matched the average returns of platform-centric wealth peers such as Charles Schwab, Interactive Brokers, and LPL Financial, despite its more complex business mix.
This strength in performance has pushed Morgan Stanley’s trailing and forward P/E ratios above the Financials sector average, reflecting a valuation premium tied to its market leadership, scale, and earnings consistency. While its P/E multiples sit slightly above diversified bank peer average, they remain well below the levels seen in capital-light wealth platforms – positioning MS as a relative value pick.
When viewed through additional valuation lenses relevant to financial institutions, Morgan Stanley appears moderately valued relative to its performance. It leads its banking peer group in Return on Tangible Common Equity (ROTCE), a key metric for profitability that strips out goodwill and intangibles. At 23%, MS ranks ahead of JPM (21%) and well above other large banks, signaling strong capital efficiency.
Morgan Stanley’s hybrid model – combining institutional scale with a growing capital-light wealth engine – supports this premium. That’s reflected in its P/TBV ratio of 2.79x, which, although elevated, is supported by consistently high ROTCE and durable earnings power. The valuation suggests investors are paying a premium for quality and returns, not speculation.
At the same time, MS trades below wealth-centric firms like LPLA, IBKR, and SCHW on a P/TBV basis. Yet its ROTCE is competitive with IBKR and SCHW, and while well below LPLA’s 50%, it comes with a significantly lower multiple. This reinforces the view that MS offers institutional-grade capabilities with wealth-platform economics – at a discount.
The stock’s performance is further underpinned by a robust capital return program. In June 2024, Morgan Stanley’s board re-authorized a $20 billion share repurchase program with no expiration, resetting its buyback capacity. The firm repurchased $6.8 billion of its stock in 2024, followed by another $1.5 billion in Q1 2025, highlighting consistent execution.
Moreover, Morgan Stanley’s shareholder compensation is far from limited to its stock appreciation potential. The firm has paid dividends since 1993 and has raised them annually for the past 12 years. The current dividend yield stands at 2.9% – more than double the Financials sector average – and is expected to continue growing at a ~9-10% rate, supported by strong cash generation and a modest payout ratio.
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Investing Takeaway
Morgan Stanley is a diversified financial platform with leadership across institutional trading, investment banking, wealth advisory, and asset management. Its integrated model combines scale with capital efficiency, allowing it to perform across interest rate cycles and shifting market regimes. The firm’s growing wealth platform, strategic technology investments, and focus on durable fee-based growth have increased earnings resilience and market share. A capital return strategy anchored in dividends and buybacks supports long-term shareholder value without sacrificing balance sheet strength. With a blend of institutional depth and retail exposure, Morgan Stanley remains structurally advantaged amid secular trends in global wealth creation, financial digitization, and capital markets activity – positioning it as a high-quality core holding for long-term portfolios.
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New Sell: MetLife (MET)
We are selling MetLife despite its reputation as a well-run, conservatively managed insurer with a long-standing commitment to shareholder returns. MET offers strong capital discipline, consistent buybacks, and a dividend yield over 3%, all of which normally make it a compelling core holding. However, the stock has struggled to regain traction since its Q1 2025 earnings miss, and we see limited near-term catalysts to drive a meaningful rebound.
In early May, MET reported quarterly adjusted EPS of $1.72 – well below consensus estimates of $1.94. While management cited elevated claims and adverse investment variances, the broader takeaway was muted: revenue growth disappointed, underwriting margins tightened, and forward guidance lacked clarity. The stock dropped sharply and has since underperformed peers in the financial sector.
Analysts remain bullish – most still rate the stock a “Buy,” citing its diversified business model, strong balance sheet, and sensitivity to higher interest rates. But optimism alone isn’t enough. In today’s environment of persistently high capital costs and mixed macro signals, MET needs to either accelerate growth or deliver a clearer strategic catalyst to reengage investor interest. Looking ahead, the possibility of Federal Reserve rate cuts later in 2025 poses a risk to MetLife’s net investment income and spread-based margins – a headwind that could further pressure earnings if growth doesn’t materialize elsewhere.
Compounding the issue is that MET’s core life and retirement businesses are not in obvious secular growth cycles. While higher rates helped margins in 2023 and early 2024, that benefit is now largely priced in, and may reverse if rate cuts begin in late 2025. At the same time, demand for annuities and group insurance products is stable but unspectacular. Unlike peers that have leaned into alternatives or fee-based expansion, MET has taken a more conservative approach – one that limits downside but also caps upside.
Frankly, if we weren’t looking to free up space in the Portfolio for higher-conviction opportunities, we wouldn’t be exiting MET. But with the stock still stuck near its post-earnings lows and trading at roughly 8.5x forward earnings – cheap, but not enough to spark momentum on its own – we believe capital is better deployed elsewhere. Unless the company delivers a growth surprise or unveils a transformative strategic shift, we don’t see a clear reason to expect meaningful outperformance in the near term.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have ebbed and flowed, but our Winners list remained unchanged, still holding 12 stocks: GE, AVGO, HWM, ANET, EME, TSM, ORCL, APH, TPL, IBKR, PH, and CRWD.
The first contender for the Club’s entry is still IBM with a 26.14% gain since purchase. Will it gain this rite of passage, or will another stock outrun it to the finish line?
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
