Bank Stocks: How Technology Adoption Could Boost Valuations

Large-cap bank stocks have powered higher over the last year. Fueled by a steepening yield curve, a pickup in capital markets activity, and rising equity markets, they have produced exceptional returns. There is scope for further gains, however. Because right now, large-cap banks are rapidly evolving into tech-centric entities and this structural evolution is likely to have implications for their valuations.

Banks Are Now More Scalable

In the past, banking growth was relatively linear. If an institution wanted to obtain more customers, it typically needed more physical branches and loan officers. Technology is changing the game, however, enabling banks to generate exponential growth. Today, an institution with a digital banking platform can potentially onboard millions of new customers with almost zero additional physical cost.

We’ve seen this scalability within the industry in recent years. JP Morgan’s online bank Chase is a good example. It launched in the UK in 2021 and within a year, it had attracted over a million customers and raised £10 billion in deposits, all without a single physical branch¹. By the end of 2024, it had 2.5 million² customers and over £20 billion worth of deposits.

Given this new level of scalability and potential operating leverage, traditional bank valuation metrics like the price-to-tangible-book ratio are becoming less relevant. Because a bank’s value is no longer limited by its physical assets and balance sheet. Instead of looking at banks as institutions that are constrained by capital and physical footprints, investors are starting to see businesses that are driven by data, software, and scalable platforms. Looking ahead, this trend is likely to gain momentum as banks embrace technology.

Technology is Unlocking New Revenue Streams

Technology is also helping banks create new revenue streams. No longer is banking about net interest income; today banks can create recurring, fee-based income that isn't dependent on interest rates by developing “embedded finance” or “banking-as-a-service” solutions.

An example of this in action is Goldman Sachs and its Transaction Banking (TxB) platform. This is a cloud-native platform specifically designed to be used by other companies' software.

TxB provides banking APIs for a range of businesses including FinTech powerhouse Stripe. When a business uses Stripe Financial Accounts for Platforms, the banking infrastructure behind the scenes is often provided by Goldman Sachs.

This platform has created recurring, fee-based income for the bank that isn't dependent on interest rates. In terms of valuation, it has shifted Goldman Sachs from being an investment bank with volatile earnings to a "platform company" with stable, fee-based earnings.

It’s worth pointing out that the embedded finance market is growing rapidly – by 2030 it’s expected to be worth $7.2 trillion globally, according to a report by Dealroom and ABN AMRO Ventures³. So, it could be a major growth driver for banks in the years ahead and help to boost valuations.

AI is Lowering Costs Dramatically

Technology is not just a revenue story for the banks though; it’s also a cost reduction story. In recent years, banks have made large investments in AI, and this is now leading to significant efficiency gains.

Take Bank of America's "Erica" virtual AI assistant, for example. Today, it serves nearly 50 million users – helping customers manage their accounts and find answers to questions – and already it has surpassed 3 billion lifetime interactions⁴. Critically, Erica resolves 98% of customer inquiries without human intervention. As a result, it is saving the bank the equivalent of around 11,000 staffers’ daily work⁵.

Of course, customer service is just one of many areas of banking where AI technology can dramatically boost efficiency. Other areas include:

• Customer onboarding: One institution in a PwC survey cited a 40% decrease in costs to verify commercial banking clients thanks to AI-driven onboarding and verification tools⁶.

• Lending: By leveraging AI to analyze alternative data, banks can significantly expand their lending pools and approve more customers without increasing their overall risk.

• Anti-money laundering: AI can monitor transaction patterns and automatically produce Suspicious Activity Reports (SARs).

• Regulatory scanning: AI can scan thousands of pages of global regulatory updates daily, automatically flagging internal policies that need to be updated to stay compliant.

Given all these different use cases, AI is likely to help banks significantly reduce their efficiency ratios (how much it costs to generate $1 of revenue) in the years ahead. According to PwC, banks fully embracing AI could see a 15 percentage-point improvement in their efficiency ratios⁶.

It’s worth pointing out that the cost reduction story for the banks is not just about AI. Another technology that could dramatically increase efficiency in the coming years is blockchain. According to Tom Lee, Managing Partner and Head of Research at Fundstrat, a bank such as JP Morgan could dramatically lower its headcount by using blockchain – he has stated that JP Morgan built on the blockchain may only need 20,000 employees as opposed to the 300,000+ employees it has today⁷. His view is that increased blockchain adoption could fundamentally change how the bank is valued.

Tech-Focused Banks Are Seeing Higher Valuations

Zooming in on JP Morgan, it is spending heavily on technological transformation at present. Today, it has an annual tech budget of $18 billion⁸.

Thanks to this enormous budget, the bank has been able to build a proprietary internal generative AI app that can summarize documents, write code, and draft emails. This is now being used by 200,000 employees. The company has also been able to migrate virtually all of its payments applications to the public cloud or strategic data centers – allowing for real-time data analysis for personalized customer experiences and faster fraud detection – and build out its Kinexys blockchain platform. So, there is a lot of innovation at the bank today.

It’s still early days in terms of results. But already, the market is starting to reward JP Morgan with a higher valuation. Today, the bank sports a price-to-tangible-book value ratio of approximately 3.2⁹ – more than double the industry average. As for its price-to-earnings (P/E) ratio, its forward P/E sits at around 15 – well above the sector average.

Clearly, JP Morgan is no longer being valued as just a bank; its technology drive has become part of the investment thesis. If the bank can show that its investments in AI and blockchain are paying off, the stock’s valuation may continue to climb.

A New Narrative for Bank Stocks

In summary, bank valuations could be poised for a significant upward re-rating as institutions modernize their operations with technology. As banks enhance and streamline processes with AI, investors will most likely start to value them more like tech companies. No longer is the banking story about interest rates and net interest margins. Today, the narrative is about data, software platforms, recurring revenues, automation, and scalability.

Footnotes:

¹Chase, Chase exceeds one million U.K. customers as it marks first anniversary, as of September 28, 2022

²JP Morgan, as of May 27, 2025

³WeForum, Why embedded finance is a disruptive force financial institutions can’t ignore, as of April 8, 2025

⁴Bank of America, A Decade of AI Innovation: BofA’s Virtual Assistant Erica Surpasses 3 Billion Client Interactions, as of August 20, 2025

⁵The Financial Brand, What Banks Can Learn from BofA’s Multi-Billion Dollar AI Bet, as of December 8, 2025

⁶Pwc, The future of banking: How AI is reshaping the industry, as of October 16, 2025

⁷X, Crypto Town Hall, TOM LEE SAYS BLOCKCHAIN WILL CHANGE HOW BANKS ARE VALUED, as of December 27, 2025

⁸JPMorganChase, We’re one of the world’s largest tech and data-driven companies, as of January 14, 2026

⁹LSEG, as of January 14, 2026