Charles Schwab (SCHW) Stock Slips Despite Record Q3 Earnings Power

Charles Schwab just released its Q3 2026 numbers and the stock slipped about 2% on the day. That looks more like an emotional cooldown than a verdict on collapse. The brokerage and wealth giant reported record quarterly revenue of about US$7.2b and basic earnings per share of roughly US$1.63, levels that sit comfortably above recent quarters. The real story is profit power. Net income excluding one-offs reached about US$2.8b, while the share price move suggests traders focused on short-term worries and the underlying earnings performance pointed to a sturdier picture.

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Q3 2026 Earnings Summary

• Total Revenue (Q3 2026 vs Q3 2025): US$7,171m compared with US$6,135m (up about 16.9%).
• Net Income Excluding Extra Items (Q3 2026 vs Q3 2025): US$2,811m compared with US$2,277m (up about 23.4%).
• Basic EPS (Earnings Per Share) (Q3 2026 vs Q3 2025): US$1.63 compared with US$1.26 (up about 29.0%).
• Adjusted Pretax Margin (Q3 2026 vs Q3 2025): 54.8% compared with roughly 51.3% (an improvement of about 350 basis points).

Earnings tell you how Charles Schwab performed on paper in Q3, but investors who care about valuation usually pay closer attention to the cash that actually moves through the business. Based on Charles Schwab’s cash flows alone, the stock could be a dramatic 36% undervalued.

Evaluating Schwab’s “Trading And AI Upside” Story

Schwab’s bullish case leans heavily on stronger activity and smarter technology paying off over time.

"Record usage of digital channels, with over 500 million quarterly logins for three straight quarters and rising research content interactions, suggests clients are consolidating more of their activity on Schwab’s platforms."

The latest quarter backs up that claim with hard outcomes. Trading revenue reached US$1.2b with daily average trades at 10.7m, while adjusted pretax margin improved to 54.8%. Management flagged AI tools like Charley and advisor integrations as already lifting productivity and supporting higher client engagement, which aligns with this consolidation narrative rather than contradicting it.

One Narrative has put a figure on that disagreement. → See the Narrative with its higher Fair Value, assumptions and all.

Schwab’s Tech Spend Fears vs Margin Reality

Critics worry Charles Schwab is pouring too much into AI and new platforms, locking in permanently higher running costs.

"Heavy investment in AI, technology and new platforms such as spot crypto could overshoot sustainable demand. This may lead to structurally higher run-rate technology and personnel spending that compresses operating leverage and erodes pretax margins, even if revenues keep growing."

The latest print does not yet show that squeeze. Adjusted expenses grew slower than revenue, and pretax margin reached 54.8%, higher than last year. That points to operating leverage still working despite heavier digital and AI outlay, although it remains early to call this trend durable.

Hunt Mispriced Earnings Power

Charles Schwab just reported results that showed strong earnings power but a muted share price reaction. The real opportunity is finding stocks that could be undervalued before the market corrects their pricing.

• Company 1 - 23% below our estimate - serves investigation teams shifting from device-by-device work to integrated cloud platforms handling digital evidence.
• Company 2 - 30% below our estimate - supplies connectivity and custom silicon that large computing customers depend on for reliable data flow.
• Company 3 - 38% below our estimate - sells lidar units to manufacturers moving from small pilots to full production programs as sensor demand scales.

That is three of the list. See all 33 potentially undervalued companies →

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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