Wall Street has a funny way of telling you that "best" doesn't always mean "buy." If you’ve been following the banking sector lately, you know JPMorgan Chase (JPM) is basically the undisputed heavyweight champion. Under Jamie Dimon, it’s become a fortress. But recently, the folks over at Baird decided to rain on the parade.
Baird analyst David George recently made waves by downgrading JPMorgan Chase stock from "Neutral" to "Underperform." For those who don't speak analyst-lingo, that's basically a polite way of saying, "Hey, maybe it's time to take some cash off the table." The reason? It’s not that the bank is failing—far from it. It’s just that the price has become, well, a bit ridiculous.
Honestly, it’s a classic case of a great company versus a great stock. You can love the company and hate the valuation. That’s exactly where Baird seems to be sitting right now.
The Math Behind the Baird Downgrade
So, why the sudden cold shoulder? David George pointed to a few specific red flags in his note to clients. The big one is the "risk/reward" balance. Essentially, when a stock is priced for perfection, even a tiny mistake can send it tumbling.
JPMorgan has been on an absolute tear. In 2024 and through 2025, the stock outpaced the S&P 500 by a wide margin. But that success has pushed its valuation metrics into territory that makes value investors sweat. Here’s a quick look at the numbers that spooked Baird:
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- Tangible Book Value (TBV): The stock was trading at roughly 2.6 times its tangible book value. For context, most big banks are happy to trade at 1.5x or 2.0x. 2.6x is near an all-time high.
- Price-to-Earnings (P/E) Ratio: JPM is trading at over 14 times its estimated 2026 earnings. While that sounds low compared to tech stocks like Nvidia, for a massive bank, that's actually quite expensive.
- The "Over-earning" Problem: Baird argues that JPMorgan is currently "over-earning" on things like net interest margin and provisions. Basically, they're making a ton of money because interest rates have been high, but that might not last forever.
Is Jamie Dimon’s "Fortress" Starting to Crack?
Nobody is saying JPMorgan is in trouble. In fact, their Q4 2025 earnings report was actually pretty strong. They pulled in $14.7 billion in net income (excluding some one-time items) and managed to grow their revenue by nearly 7% year-over-year.
But here is the catch: even with those "great" results, the stock didn't exactly skyrocket. Why? Because the market already expected it.
The bank is currently navigating some tricky waters. They recently took a $2.2 billion hit related to the Apple credit card portfolio—a move that Jamie Dimon called "patient and thoughtful" deployment of capital, but some analysts see as a potential drag on future expenses. Plus, their 2026 expense guidance is climbing to $105 billion. That’s a lot of overhead, even for a bank that makes money while it sleeps.
What Most People Get Wrong About JPM
A common misconception is that if you buy a "safe" stock like JPMorgan, you can’t lose. But as Baird points out, you can lose money on a great company if you pay too much for it.
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A lot of investors are banking on a "pro-growth" agenda and a lighter regulatory touch from Washington to keep the rally going. Baird’s David George isn't so sure. He noted that even with a friendlier regulatory environment, market expectations are already "lofty." If the bank doesn't aggressively buy back shares—and they’ve hinted they might be cautious there—there isn't much left to push the stock price higher.
Comparing JPM to the Competition
When you look at the rest of the "Big Four," JPMorgan looks like an outlier.
- Bank of America: Usually trades at a lower multiple and is more sensitive to interest rate drops.
- Wells Fargo: Still dealing with some regulatory hangups but often seen as having more "room to run."
- Citigroup: The "fixer-upper" of the group, which naturally trades at a much lower valuation.
By comparison, JPM is the "luxury brand" of banking. But even luxury brands have a ceiling.
What Should You Actually Do?
If you're holding JPM, don't panic. An "Underperform" rating isn't a "Sell everything and run for the hills" signal. It’s a "Hey, maybe don't buy more right here" signal.
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Baird's price target for JPM was recently adjusted to $280. Considering the stock has been hovering significantly higher than that, it suggests a potential downside of about 8-10%.
Actionable Insights for Investors:
- Check your exposure: If JPMorgan has grown to become 20% of your portfolio because of the recent rally, it might be time to "take some chips off the table," as Wolfe Research recently suggested.
- Watch the Net Interest Income (NII): Keep a close eye on the bank's NII guidance for 2026. They’re projecting about $103 billion, but if that number starts to slip because of Fed rate cuts, the stock could get hit.
- Look at Regionals: Some analysts, including those at Baird, suggest the "risk/reward" might actually be better in regional banks right now, which haven't seen the same massive run-up as the mega-caps.
- Don't ignore the dividend: Even if the stock price stalls, JPMorgan is a dividend machine. They’ve raised it for 14 straight years. If you’re in it for the income, the short-term price fluctuations matter a lot less.
Ultimately, the Baird downgrade is a reminder that in the world of investing, price is what you pay, but value is what you get. Right now, Baird thinks the price is just a little too high for the value on the table.
Keep an eye on the next round of earnings. If JPM can't beat expectations and raise guidance again, those valuation concerns are going to get a lot louder.
Next Steps:
Review your current banking sector weightings. If you are overweight in mega-cap banks, consider diversifying into mid-cap financials or defensive sectors that haven't reached all-time high valuation multiples. You should also set price alerts near the $280 mark to see if the stock finds support at Baird's target level.