What Equity Analysts Do

Equity analysts research and evaluate publicly traded companies to provide investment recommendations. Their job involves analyzing financial statements, market trends, and company performance to determine whether a stock is a good buy, sell, or hold. They determine whether the common stock of a company is undervalues (buy), fairly valued (hold), or overvalued (sell).

Industry Decline and Job Cuts

Over the past decade, the number of equity analysts at the world’s largest banks has plummeted by more than 30%, particularly with entry-level analysts. The heaviest reductions have occurred in Europe and Asia, where regulatory policies such as MiFID II, a set of rules that govern financial markets in the European Union, have forced asset managers to pay separately for research. This shift diminished demand for sell-side research, leading many firms to trim their analyst teams.

As a result, remaining analysts are now tasked with covering more companies than ever before—often two to three times as many as in previous years. This dilution of research depth has raised concerns about the quality and depth of financial analysis.

The Impact of Passive Investing and AI

The rise of passive investment strategies, such as exchange-traded funds (ETFs) and index funds, has further marginalized equity research. With passive funds surpassing active management in U.S.-based mutual funds and ETFs, traditional stock-picking strategies—historically reliant on analysts' insights—have become less relevant.

Meanwhile, AI is accelerating job displacement. Firms like JPMorgan and Goldman Sachs have already begun experimenting with AI-driven analysis tools, which can process massive amounts of financial data faster than human analysts. While AI lacks the nuanced judgment of experienced professionals, its ability to quickly identify trends and generate reports is making firms increasingly question the cost-effectiveness of human analysts. Preliminary research shows that AI outperforms financial analysts in predicting stock performance; however humans outperform AI during times of economic shock (e.g., recessions and financial crises).

Career Uncertainty

Despite the shrinking job pool, entry-level salaries for equity analysts remain relatively high, ranging from $110,000 to $170,000 annually. However, when adjusted for inflation, total compensation has declined by approximately 30% since the pre-financial crisis era (pre-2008).

Many displaced analysts have been forced to pivot into alternative roles. Some have transitioned to hedge funds or investor relations, while others have sought opportunities in fintech startups leveraging AI for market analysis. Others have embraced social media and independent finance blogging to monetize their expertise.

Looking to the Future

With fewer analysts covering individual stocks, smaller companies are struggling to gain investor attention. Stocks with limited analyst coverage often experience higher volatility, wider bid-ask spreads, and reduced liquidity. Some studies suggest that companies losing analyst coverage face increased capital costs and underperform relative to well-covered peers.

As traditional research departments shrink, asset managers are exploring cost-effective ways to fill the gap. Many firms now rely more heavily on in-house research teams or subscribe to independent analyst platforms. While AI-driven research tools will likely continue to expand, the demand for insightful, human-led financial analysis persists—albeit in new forms.

The career outlook for financial analysts is increasingly uncertain, but opportunities still exist for those willing to adapt. While traditional equity research roles are in decline, the rise of independent research platforms, AI integration, and alternative career paths in finance present new avenues for success.

In the Classroom

This article can be used to discuss investment banking and stock markets (Chapter 16: Financial Management and Securities Markets).

Discussion Questions

1.     In what ways might AI enhance or hinder investment decisions compared to traditional equity analysts?

2.     Do you think traditional stock-picking will become obsolete, or is there still a role for human analysts in the future of investing?

3.     What skills or strategies do you think would be most valuable for an aspiring financial analyst to remain competitive in this changing industry?

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.