Does HSBC Holdings (LSE:HSBA) Look Undervalued As AI Reshapes The Bank?

HSBC Holdings has seen its stock climb sharply over the past few years, and with fresh headlines around AI, job cuts and new digital projects, the key issue for investors is whether the current price is properly grounded in the returns the bank actually earns on its capital.

• Over the past 5 years the share price has returned 343.6%, which puts real weight on the question of whether the underlying capital returns are strong enough to underpin that kind of performance.
• Management is reshaping the business around AI, from cutting a large share of UK wealth management adviser roles to testing tokenised deposits and AI driven micropayments, which can affect future profitability, cost efficiency and the timing of cash flows that matter for any intrinsic value estimate.
• What if you looked at HSBC Holdings through its earnings instead? See why HSBC Holdings's 15.4x P/E tells a different valuation story.

The issue now is whether the returns HSBC generates on the capital it invests are solid enough to justify where the stock trades today.

If you want more ideas built around AI, digital banking and real-time payments, a focused stock screen of 55 AI infrastructure stocks.

Does HSBC Holdings Look Undervalued on Excess Returns?

The Excess Returns model asks a simple question: Does HSBC Holdings earn enough on its equity to justify the current £14.28 share price? On the inputs used here, the bank is assumed to generate stable earnings of £1.92 per share from a book value base of £10.08 per share, with an average Return on Equity of 16.38%. That implies a cost of equity of £1.00 per share and an excess return of £0.92, meaning the model treats HSBC as earning comfortably more on its capital than investors are assumed to require.

The framework then compounds those excess returns on a stable book value of £11.74 per share and layers on a separate dividend profile to reach an intrinsic value estimate that sits substantially above the current market price. HSBC’s role in tokenised deposits and AI driven payments testing helps explain why the Excess Returns model assumes the bank can keep reinvesting its equity base at attractive rates rather than fading quickly. Find out what HSBC Holdings could be worth using our Excess Returns estimate.

The HSBC Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives continue from the HSBC Holdings valuation puzzle and explain what patterns in growth, profitability and earnings would need to hold for the shares to be worth meaningfully more or less than today. Each storyline links its number to a specific view on how HSBC Holdings' growth, profitability and risk profile might evolve. This gives you something concrete to track and revisit on the Community page as fresh information arrives.

Community views on HSBC Holdings split between investors who think the market is underestimating its refocused Asia and AI story and those who see execution and concentration risks as underappreciated.

Bull case: 7% undervalued

"The bank is intensifying investment in Asian wealth management and private banking, leveraging a strong brand and local presence in fast-growing wealth markets..."

Discover why this Narrative puts HSBC Holdings at 7% undervalued.

Bear case: 39% overvalued

"The planned privatization of Hang Seng Bank concentrates earnings and capital in Hong Kong at a time when commercial real estate credit quality remains under pressure..."

Explore why this Narrative puts HSBC Holdings at 39% overvalued.

One more critical piece for HSBC Holdings that this valuation does not answer

Who actually steers HSBC Holdings, how their pay is structured, and whether those incentives align with long term shareholders is the next question that can change how you read every number above. See who runs HSBC Holdings and how they are paid.

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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