It’s pretty easy to find great tech companies that are working with artificial intelligence. Nvidia (NVDA), Alphabet (GOOG) (GOOGL), and Palantir Technologies (PLTR)—they're all fantastic opportunities to invest in AI and grow your nest egg.
But Morgan Stanley has another idea. Its analysts say that bank stocks are a good bet on AI right now, as AI's inherent productivity and efficiency gains will lead to higher earnings over time.
The analysts identified Citigroup (C), Bank of America (BAC), and Truist Financial (TFC) as the “most defensible” picks right now to capitalize on AI efficiencies. Let’s look at each pick.
AI Bank Stocks #1: Citigroup (C)
Citigroup, which is based in New York, is a diversified banking company that provides consumer banking, credit, corporate and investment banking, and wealth management services. The company has a market capitalization of $193 billion.
The company has been a huge winner in the last 12 months, with a stock price jumping 43% versus just a 6% gain in the Nasdaq Bank Index. Citigroup also pays a quarterly dividend of $0.60 per share, for an overall dividend yield of 2.2%.
And considering its dramatic rise, C stock has a surprisingly affordable valuation. The forward price-to-earnings ratio is just 10.9 now, after being more than 15 in December.
Revenue in the fourth quarter was $19.87 billion, up 2% from a year ago, and net income was $2.47 billion, down 13% from last year. Management attributed the drop to a $1.2 billion pre-tax loss from the planned sale of its Russian subsidiary, AO Citibank, to Renaissance Capital. The deal closed in February. Excluding that charge, net income would have been $3.6 billion.
Analysts have a consensus “Moderate Buy” rating on C stock, with a mean price target of $134 that represents a potential 21% upside from the current stock price.
AI Bank Stocks #2: Bank of America (BAC)
Bank of America, like Citigroup, is one of the major U.S. banks that also offers consumer banking, credit, corporate banking, and investment services. The Charlotte, North Carolina, bank is also somewhat larger than Citigroup, with a market cap of $358 billion.
However, Bank of America hasn’t seen the dramatic rise in stock price that Citigroup investors enjoyed. Shares are up only 8.5% in the last 12 months—just better than the Nasdaq Bank Index, but still trailing its smaller competitor by a wide margin. Its dividend of $0.28 per quarter equates to a yield of 2.2%.
BAC stock also has a forward P/E that’s fallen from nearly 15 at the end of the year. Currently at 11.4, it’s comparable to the other stocks on this list.
Revenue in the fourth quarter was $28.4 billion, up 7% from a year ago, and net income of $7.6 billion increased nearly 12% from Q4 2024. Bank of America also returned $8.4 billion to shareholders in the quarter through dividends and $6.3 billion in share repurchases.
Analysts have a consensus “Moderate Buy” on BAC stock, with a mean price target of $61.70 that represents a potential 25% upside from the current stock price.
AI Bank Stocks #3: Truist Financial (TFC)
Truist Financial, which is also headquartered in Charlotte, falls just below the grouping of major bank stocks, but it’s still a significant player. Truist is the sixth-largest banking company in the U.S. and has a market cap of $61 billion.
The share price growth has also been similar to Bank of America, as it’s up only 8.3%, and its forward P/E of 11 falls right in line with Citigroup and BAC. The quarterly dividend of $0.52 per share, however, is much more generous, accounting for a yield of 4.2%.
Revenue in the fourth quarter was $5.5 billion, up 2.7% from a year ago. Net interest income of $3.7 billion was 3.1% better than a year ago but narrowly missed analysts’ expectations. Net interest income accounts for nearly 70% of Truist’s total revenue, so its lending operations are critical for the company’s success.
Analysts also have a consensus “Moderate Buy” rating for Truist, although the sentiment isn’t nearly as bullish as it is for Citigroup or Bank of America. The mean price target of about $57 represents potential gains of 16% from TFC stock.
On the date of publication, Patrick Sanders had a position in: NVDA , PLTR . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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