TD Bank (TSX:TD) stock went from being unloved last year to being one of the hottest TSX Index-beating momentum plays in the financial scene. In numerous prior pieces, I pounded the table on shares of TD Bank and its new CEO, Raymond Chun. Fast-forward to today, and Chun’s leadership has helped the bank really turn the tide. The results really do speak for themselves.
And I don’t think Mr. Chun is finished bringing out the best in a bank that might have what it takes to outrun many of its peers in the Big Six banking basket through 2026 and even beyond. The “Back to Winning” plan, which aims to cut a considerable amount of costs over the next couple of years, thanks in part to AI efficiency gains, is an encouraging one that should have bank investors getting really excited.
TD Bank is back to winning. More wins could be ahead as AI saves the bank big bucks in the next few years
Undoubtedly, TD Bank stock is already winning in a big way, with shares now up close to 54% year to date. And while there have been notable downgrades, like those courtesy of Jefferies, which is starting to view the overheated banks as a bit overvalued, I’m inclined to think that the run can continue. The sell-side analysts have been wrong before when it comes to the big banks. And I do think it’ll prove a bad bet to bet against the names as they enter what could be a furious AI-driven bull market in banking.
Now, AI could be a profoundly transformative technology, especially for the likes of TD Bank, which had the tech on its radar even before ChatGPT changed the world in the back half of 2022. While there is absolutely no question that the earnings bar is going to be higher going into the new year, now that analysts have seen what the big banks are capable of in 2025, I still think many analysts are undervaluing the long-term potential to be had as the big banks embrace the full power of AI.
TD Bank stock: Opportunity to buy at new highs?
Personally, I think there’s a huge automation opportunity, especially when it comes to advisory services and even mortgage approvals. In any case, I think AI makes the business of TD Bank run more efficiently and perhaps far more profitably. As TD Bank aims to slash $2.5 billion worth of expenses, I do think the big winner in banking keeps on winning.
The tides have turned in a hurry, and there’s no reason to throw in the towel just because TD Bank stock had a glorious past year of gains. If anything, there’s reason to buy on strength, as shares are still going for a modest trailing price-to-earnings (P/E) multiple, currently just over 10 times.
Bottom line
While the banks have momentum behind them, I simply don’t see the overvaluation that warrants concern going into the new year. Arguably, I’d be inclined to group TD Bank stock into the deep-value and momentum baskets. It’s quite rare to get a stock that fits both moulds.
Either way, the 3.6%-yielding dividend juggernaut seems worth sticking with now that it’s a more than $200 billion titan. As for the analyst criticisms, I’d take them with a grain of salt, especially since the banks are showing few signs of slowing down.
