Goldman Sachs, JPMorgan Chase, and Morgan Stanley are leading the AI stock boom. What are their advantages?
CNBC
1h ago
Ai Focus
Driven by the global boom in artificial intelligence stocks, the relaxation of capital regulations, and increased lending to hedge funds, Wall Street's major banks have seen a fruitful year in stock trading business this year. Goldman Sachs, JPMorgan Chase, and Morgan Stanley have collectively accounted for about 80% of the stock trading revenue, enjoying a clear leading edge.
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Driven by the global artificial intelligence stock boom, the relaxation of capital regulations, and increased lending to hedge funds, the stock trading business of major Wall Street banks has already seen a bumper harvest this year, despite there still being one quarter left in the whole year.

According to company documents, as of September 30th, the five major investment banks generated a total of approximately $67 billion in stock business revenue, which is $70 billion more than the combined revenue of these same banks for the entire year of 2025, a year that was already record-breaking in its own right.

However, it was the "Big Three" of Wall Street: Goldman Sachs, JPMorgan Chase, and Morgan Stanley, that took away the largest share. Since the beginning of this year, these three banks have collectively achieved $52 billion in stock trading revenue, which is nearly 80% of the total.

"In the AI superdeal, the three giants all regard each other as their main competitors; that's basically the case," said Mike Mayo ( Mike Mayo ), a banking analyst at Wells Fargo, to CNBC. "They are the most capable of benefiting from this market."

As the total market value of stocks expands, and trading activities by institutions and retail investors in stocks, ETF, and derivatives increase, Wall Street banks are experiencing an epic wave of profit growth. What also drives this activity is the loans provided by banks to hedge funds through their principal brokerage business, enabling the latter to amplify their bets.

Prime brokerage business – that is, providing margin loans, securities lending, and other trading services to hedge funds – has become a key battleground and source of growth. The prime brokerage business of the three giants holds a central position within the larger stock market narrative because it serves the largest funds that operate across markets and products.

Bank executives stated last week that the demand for leveraged bets on AI hardware, hyperscale cloud service providers, and chip suppliers has reached new heights.

At Goldman Sachs, equity financing business surged by 96% in the third quarter, setting a record of $3.37 billion. JPMorgan Chase and Morgan Stanley did not disclose this data separately, but indicated that they also observed a similar trend.

Jeremy Barnham, Chief Financial Officer of JPMorgan Chase ( Jeremy Barnum ), responded to analysts' questions regarding financing needs during the bank's third-quarter conference call by saying, "I like the phrase you mentioned, 'the insatiable demand for capital.' It sounds quite accurate."

Barnum stated, "At a time when AI has become such an overwhelming topic... various different mechanisms are being passively used to acquire capital."

Wall Street executives stated that this demand is helping the three giants transform their stock trading desks from cyclical, transaction-based businesses into more stable, higher-profit lending engines.

The performance gap between Wall Street giants and competitors such as Bank of America and Citibank highlights the deepening divergence in the capital markets sector.

"For customers, value is not just about the price of a transaction, but about coverage and continuity," said Rashid Alawi, head of JPMorgan's global equities business ( Rachid Alaoui ), in an interview with CNBC. "What you need is a broker that can provide comprehensive services across a range of products, and you want these services to extend as you expand across different regions. This is particularly important in times of volatile markets and uncertainty."

Placing bets in the billions of dollars, such as engaging in leveraged swaps on highly volatile AI stocks or industries ETF, may require a substantial balance sheet. Trading executives stated that even if the largest banks incur a potential loss of 100 million dollars, it would not threaten their quarterly performance; however, smaller or more specialized banks are unable to take on such single transaction risks and can only refuse the business or cede their share.

Bloomberg industry research analyst Herman Chen ( Herman Chan ) stated that U.S. prime brokers also benefited from European banks, including Credit Suisse, withdrawing from their equity business.

Chen said, 'Prime brokerage business is one of the ultimate large-scale businesses. If you have a strong stock business, hedge funds will be willing to trade with you because you have a larger pool of trading counterparties.'

"Sell shovels"

Despite the U.S. market being swept by software and cloud computing giants this year, trading executives say that the fastest-growing frontier for the stock business is in Asia.

Institutional investors are flocking to South Korea and Taiwan, targeting the "shovel sellers" in the AI supply chain: storage chip manufacturers and semiconductor manufacturers that support data center construction, said Alavi.

For the three giants, with their presence in Tokyo, Hong Kong, Seoul in South Korea, and Mumbai in India, Asia represents a goldmine for trading. However, trading executives pointed out that trading taxes and stamp duties are included in the total revenue, which artificially inflates the overall amount of their main brokerage business in Asia.

In addition, there is no unified definition of stock trading income. As a result, some banks include services such as settlement in their total stock trading revenue, while others do not, which makes cross-comparison difficult.

But this does not change the overall momentum of this business. The stock market rally that began in October 2022, a few weeks before OpenAI released ChatGPT, has already provided impetus for this round of growth.

"We are still in a world dominated by stocks," said Ted Pick ( Ted Pick ), CEO of Morgan Stanley, during the company's earnings conference call. "Under all equal conditions, stocks remain an attractive asset class."

Although the CEOs of Goldman Sachs and Morgan Stanley both stated that the construction of AI is still in its early stages, analysts pointed out that if AI ultimately does not prove to be as transformative as expected, the economic downturn will have a greater impact on these banks than on others.

This wave of enthusiasm has also raised some concerns about the potential risks associated with hedge funds.

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

In August, JPMorgan Chase CEO Jamie Dimon ( Jamie Dimon ) stated that the leverage across the industry was “at its highest level ever,” but he did not further assert that this risk was great enough to threaten financial markets.

Wall Street executives and analysts pointed out that the collapse of several hedge funds this summer did not cause panic throughout the industry. The hedge fund managed by former OpenAI researcher Leopold Aschenbrunner (Leopold Aschenbrenner) was the most notable, but several smaller institutions also experienced forced liquidations.

Alavi stated that prime brokers have learned to act quickly when margin calls are made, and to rapidly reduce risks when the market is unfavorable for their clients.

“During the summer, some investors were forced to close their positions,” he said to CNBC. “They reduced their leverage, the risk decreased, and the market continued to move forward.”

"The Known Unknown"

Another factor that has contributed to the prosperity of the stock business is that the regulatory agencies under the Trump administration have relaxed some leverage rules for large U.S. banks, providing more room for expansion for businesses that require substantial balance sheet support, including principal brokerage services. The revised rules were finally finalized in 2025, and banks can begin implementing them as early as January.

Regulatory authorities have relaxed the previously strict balance sheet limits – which treated U.S. Treasury bonds and secured prime broker loans in the same way as riskier assets – thereby giving traders more flexibility in deploying their balance sheet capital.

Darryl Duffy, a professor of finance at Stanford University and a renowned expert in the field of financial stability ( Darrell Duffie ), stated: "Capital has indeed decreased, so you have to say that due to lax regulation, the leverage level of the system is indeed higher. This is not a good idea, but it has not yet gotten completely out of control."

He said that an expansion of market size and an increase in volatility will bring more trading, derivatives activities, and leverage, but this in itself is not necessarily a cause for concern.

Wall Street executives have also downplayed concerns about leverage, stating that they will use collateral and frequent stress tests to proactively address issues.

Barnum said last week: "Hedge fund leverage, as a source of systemic risk, falls entirely into the category of 'the known unknown.' It doesn't mean there is no risk, but we have a general idea of what it is."

Leslie Pike (Leslie Picker) and Reticha Shah (Ritika Shah) of CNBC contributed to this report.

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