Goldman Sachs, JPMorgan, Morgan Stanley dominate the AI ​​stock boom

Buoyed by a global boom in artificial intelligence stocks, relaxed capital rules and greater lending to hedge funds, the big Wall Street banks have had a banner year for equity trading — even though it’s only a quarter away.

The five largest investment banks have generated about $67 billion in equity revenue through September 30, according to company filings. That’s $7 billion more than what the group made in all of 2025, which in itself is a record.

But it’s the Big Three on Wall Street that have gotten the biggest slice of what will be the industry’s most lucrative arena: Goldman Sachs, JPMorgan Chase and Morgan Stanley has made a combined $52 billion in stock trading revenue so far this year, nearly 80% of the total.

“When it comes to AI mega trading, the Big Three consider each other their main competitors, and that’s pretty much it,” Mike Mayo, Wells Fargo banking analyst, told CNBC. “They are in the best position to take advantage of this market.”

Wall Street banks experienced extraordinary blockbuster profits as the total value of the stock market ballooned and trading activity from institutional and retail investors increased in stocks, exchange-traded funds and derivatives. Helping to drive this activity are loans made by banks, through prime brokers, to hedge funds so they can widen their bets.

Broker intermediaries – the business of providing hedge funds with margin loans, securities lending and other trading services – have become a key battleground and source of growth. The Big Three prime brokers are central to the larger equity story because they provide the largest funds in the market and products.

Demand for leverage to make bets on AI hardware, hyperscalers and chip suppliers has reached new heights, bank executives said last week.

At Goldman Sachs, equity financing activity surged 96% in the third quarter to a record $3.37 billion. JPMorgan and Morgan Stanley did not break out their figures, but said they saw the same dynamic.

“I like the ‘indefinable demand for capital’ point. That feels right,” JPMorgan CFO Jeremy Barnum said on the bank’s third-quarter conference call, responding to analysts’ questions about financing demand.

“At this point, AI is a tremendous theme … there’s capital being tapped through various mechanisms,” Barnum said.

The demand is helping to turn the equity desk at the Big Three from a cyclical, transactional business into a more durable, high-end lending machine, Wall Street executives said.

The performance gap between the Wall Street giant and its rivals includes Bank of America and Citigroup highlight the widening division in the capital market.

“For the client, the value is not just the price in one trade, but the coverage and the continuity,” Rachid Alaoui, JPMorgan’s head of global equities, told CNBC in an interview. “You want a seller who can offer a complete suite of products, and you want a service that travels with you across the region. That’s important in a stressed market and a period of volatility.”

Making multibillion-dollar bets, like leveraged swaps in volatile AI stocks or ETF sectors, can require huge balance sheets. The biggest banks could absorb a potential loss of $100 million without threatening the quarter, according to trading executives. Smaller or more niche banks cannot underwrite the risk of a single trade of that magnitude, forcing them to turn away from business or give up their stock.

Major U.S. brokerages have also benefited from the retreat of European banks including Credit Suisse from their equities business, Bloomberg Intelligence analyst Herman Chan said.

“Prime is one of the major scale businesses,” Chan said. “If you have a strong equity franchise, hedge funds will want to do business with you because you have greater trading opportunities with your partners.”

While the US market has been swept up in software and cloud computing giants this year, trading executives say the fastest frontier for equities is in Asia.

Institutional investors poured into South Korea and Taiwan, targeting the “picks and shovels” of the AI ​​supply chain: memory chip makers and semiconductor manufacturers that support data center construction, Alaoui said.

For the Big Three, with footprints in Tokyo; Hong Kong; Seoul, South Korea; and Mumbai, India; Asian trade is a goldmine. However, trade executives said that transaction tax and stamp duty are included in the highest revenue, artificially inflating the total Asia prime.

There is also no agreed definition of what equity trading revenue should be included, so some banks include business lines like clearing services that are excluded from total stock trading, making apples-to-apples comparisons difficult.

But this did not change the overall business momentum, driven by the stock rally that started in October 2022, a few weeks before OpenAI released ChatGPT.

“We’re still in the world of stocks,” Morgan Stanley CEO Ted Pick said on the company’s earnings call. “Equities are still, all things equal, an attractive asset class.”

While the CEOs of Goldman Sachs and Morgan Stanley say AI development is still in its early years, if AI turns out not to be as transformative as expected, the decline could hit those banks more than others, analysts say.

The boom also drew attention to the risks that hedge funds could take.

The International Monetary Fund warned this month that the increased leverage, crowded positions and related selling of hedge funds could create potential stability risks. The IMF estimates that global hedge fund assets have reached $13 trillion.

In August, JPMorgan CEO Jamie Dimon said industry-wide leverage was “the highest it’s ever been,” though he stopped short of calling the risks big enough to pose a threat to financial markets.

Wall Street executives and analysts point out that the industry is not fazed by the collapse of several hedge funds this summer. While the hedge fund run by former OpenAI researcher Leopold Aschenbrenner, Situational Awareness, has gotten the most news, some smaller companies are also experiencing forced unwinding.

Prime brokers have learned to jump on margin calls and quickly take risks when the market moves against clients, JPMorgan’s Alaoui said.

“In the summer, some investors had positions they were forced to unwind,” he told CNBC. “They deleveraged, the risk went down, and the market went up.”

Another factor driving the equity boom: Trump administration regulators have loosened some leverage rules for the biggest US banks, giving them more room to expand their balance sheet-heavy businesses including prime brokerages. The revised rules are due to expire in 2025, and banks will be allowed to use them as early as January.

By reducing the tight balance sheet caps that previously treated Treasurys and prime brokerage loans, which are secured, on par with riskier assets, regulators are giving traders greater flexibility to apply balance sheet capital.

“The capital is down, so you have to say that the system is a bit more open because of the regulatory relaxation,” said Darrell Duffie, a professor of finance at Stanford University and an expert on financial stability. “It’s not a good idea, but it hasn’t gotten dramatically out of whack.”

Larger market size and higher volatility can create more trading, derivative activity and leverage, he said, but this is not alarming.

Wall Street executives also played down concerns about leverage, pointing out that they use collateral and frequent stress tests to deal with problems.

“Hedge fund leverage is a risk contributor to the system very much in the unknown category,” JPMorgan’s Barnum said last week. “That doesn’t mean there aren’t risks, but we know what they are.”

– CNBC’s Leslie Picker and Ritika Shah contributed to this report.