Fueled by an unprecedented global surge in artificial intelligence (AI) stocks, coupled with a more accommodating regulatory environment for capital and increased lending to hedge funds, Wall Street’s largest investment banks have already achieved a landmark year for equities trading, even with the final quarter still to be tallied. The five preeminent investment banks collectively generated approximately $67 billion in equities revenue through September 30, a figure that not only signifies a substantial increase but also surpasses the total revenue of $60 billion reported for the entirety of 2025, which was itself a record-breaking period. This exceptional performance underscores a significant shift in market dynamics and profitability within the financial sector.
The Dominance of the Big Three
At the forefront of this monumental success are Wall Street’s "Big Three": Goldman Sachs, JPMorgan Chase, and Morgan Stanley. These financial titans have collectively captured the lion’s share of this lucrative market, reporting a combined $52 billion in stock trading revenue so far this year. This represents nearly 80% of the total revenue generated by the top five firms, highlighting their formidable market position and strategic advantage. According to Mike Mayo, a veteran banking analyst at Wells Fargo, "When it comes to the AI mega trade, the Big Three consider each other their main competitors, and that’s pretty much it. They’ve been best positioned to take advantage of this market." This concentration of success reflects their robust infrastructure, expansive client networks, and unparalleled balance sheet strength, enabling them to capitalize on the burgeoning demand for AI-related investments.
Wall Street banks are currently enjoying an extraordinary period of profitability, driven by the expanding total value of the global stock market and a significant uptick in trading activity across various asset classes, including individual stocks, exchange-traded funds (ETFs), and complex derivatives. Both institutional and retail investors have contributed to this heightened engagement. A crucial facilitator of this activity is the extensive lending provided by these banks, primarily through their prime brokerage divisions, which allow hedge funds to amplify their market bets through leverage.
Prime Brokerage: A Key Battleground and Growth Engine
Prime brokerage, the specialized business of offering comprehensive services to hedge funds – including margin loans, securities lending, custody, clearing, and risk management – has emerged as a critical growth driver and a fiercely contested arena among the leading banks. The prime brokerage operations of the Big Three are central to the broader equities narrative, as they cater to the largest and most sophisticated hedge funds, offering a full suite of services across diverse markets and products. This comprehensive offering allows them to support complex trading strategies, from high-frequency trading to long-term leveraged bets.
The demand for leverage to finance positions in AI hardware manufacturers, hyperscalers (large cloud computing providers), and semiconductor chip suppliers has soared to unprecedented levels, as confirmed by bank executives in recent earnings calls. Goldman Sachs, for instance, reported a staggering 96% jump in equities financing activities during the third quarter, reaching a record $3.37 billion. While JPMorgan and Morgan Stanley do not disaggregate this specific figure in their public filings, they have indicated a similar dynamic within their operations. Jeremy Barnum, CFO of JPMorgan, acknowledged this surging demand during his bank’s third-quarter conference call, remarking, "I like your ‘insatiable demand for capital’ point. That feels about right. In this moment where AI is such an overwhelming theme… there is capital being tapped through all kinds of different mechanisms."
This insatiable demand for capital has fundamentally transformed the equities desks at the Big Three. Traditionally viewed as cyclical, transactional businesses highly susceptible to market whims, these desks are increasingly evolving into more stable, high-margin lending engines. This strategic shift underscores a fundamental change in how these institutions generate revenue from their equities divisions, moving towards a more durable and predictable profit stream.
Widening Divide in Capital Markets
The stark performance disparity between Wall Street’s dominant firms and their rivals, such as Bank of America and Citigroup, highlights a growing chasm within the capital markets landscape. The ability to provide comprehensive services and substantial balance sheet capacity has become a decisive competitive advantage. Rachid Alaoui, JPMorgan’s global head of equities, emphasized this point in an interview: "For clients, the value isn’t just a price on one trade, it’s coverage and continuity. You want a dealer that can give you the full suite across products, and you want that service to travel with you across regions. That matters in stressed markets and periods of volatility."
Executing multi-billion-dollar bets, particularly complex leveraged swaps on highly volatile AI stocks or sector-specific ETFs, demands an enormous balance sheet. The largest banks possess the financial wherewithal to absorb potential losses of $100 million or more in a single quarter without jeopardizing their overall financial performance. In contrast, smaller or more specialized banks often lack the capacity to underwrite such massive single-trade risks, compelling them to decline lucrative business opportunities or cede market share to their larger counterparts.
U.S. prime brokers have also benefited significantly from the strategic retreat of several European banks from the equities business in recent years. Notable examples include Credit Suisse, which began winding down its prime brokerage operations in 2021 before its eventual acquisition by UBS in 2023, and Deutsche Bank, which underwent a major restructuring of its investment banking division. This withdrawal by major European players created a substantial vacuum, which U.S. banks were uniquely positioned to fill. Herman Chan, an analyst at Bloomberg Intelligence, noted, "Prime is one of the ultimate scale businesses. If you have a strong equities franchise, the hedge funds will want to transact with you because you have a bigger pool of trading opportunities with counterparties."
The AI Catalyst: Picks and Shovels of a New Era
While U.S. markets have been captivated by software and cloud computing giants this year, trading executives highlight that the fastest-growing frontier for equities trading has been in Asia. Institutional investors have aggressively poured capital into South Korea and Taiwan, strategically targeting the "picks and shovels" of the AI supply chain. This refers specifically to the memory chipmakers and semiconductor manufacturers that form the foundational infrastructure for data center construction and advanced AI processing. Companies like TSMC in Taiwan, and Samsung Electronics and SK Hynix in South Korea, have become critical components of this global trade.
For the Big Three, with their extensive operational footprints across key financial hubs like Tokyo, Hong Kong, Seoul, and Mumbai, the Asia trade has proven to be an exceptional goldmine. However, trading executives caution that reported top-line revenue figures for Asia prime services often include transaction taxes and stamp duties, which can artificially inflate the totals and complicate direct comparisons. Furthermore, there remains no universally agreed-upon definition of what constitutes "equities trading revenue," leading some banks to include business lines such as clearing services that others exclude, thus making precise, "apples-to-apples" comparisons challenging. Despite these definitional nuances, the overall momentum of the business remains undeniable, significantly bolstered by a robust stock market rally that commenced in October 2022, notably weeks before OpenAI released its groundbreaking ChatGPT in November 2022, igniting widespread excitement around generative AI. As Morgan Stanley CEO Ted Pick remarked on an earnings call, "We’re still in a stock-based world. Equities are still, all things being equal, the attractive asset class."
Navigating Leverage and Systemic Risk Concerns
While the CEOs of Goldman Sachs and Morgan Stanley express confidence that the AI build-out is still in its nascent stages, analysts have raised concerns about the potential implications should AI fail to deliver on its transformative promise. A significant downturn in the AI sector could disproportionately impact banks heavily invested in this boom. The rapid expansion has also drawn attention to potential risks associated with hedge fund leverage.
The International Monetary Fund (IMF) issued a cautionary statement this month, highlighting that increasing leverage, crowded positions, and correlated selling activities by hedge funds could collectively pose potential stability risks to the broader financial system. The IMF estimated that global hedge fund assets had swelled to an astonishing $13 trillion. In August, JPMorgan CEO Jamie Dimon publicly stated that industry-wide leverage had reached "the highest it’s ever been," though he stopped short of declaring the risk significant enough to threaten financial markets directly.
However, Wall Street executives and analysts generally downplay immediate concerns, pointing to the industry’s resilience during the meltdown of several hedge funds over the summer. While the highly publicized troubles of Leopold Aschenbrenner’s Situational Awareness fund, founded by a former OpenAI researcher, garnered significant media attention, several smaller firms also experienced forced unwinding of positions. Prime brokers, according to JPMorgan’s Alaoui, have become adept at swiftly initiating margin calls and de-risking client positions when market movements turn unfavorable. "In the summer, some investors had positions they were forced to unwind," Alaoui explained. "They deleveraged, risk came down, and the market moved on." This reflects enhanced risk management protocols adopted by prime brokers in the aftermath of past market disruptions, such as the Archegos Capital Management collapse in 2021, which highlighted the need for more stringent oversight of highly leveraged clients.
Regulatory Tailwinds and "Known Unknowns"
Another significant factor contributing to the equities boom has been the easing of certain leverage rules for the largest U.S. banks by Trump administration regulators. These revised rules, finalized in 2025 and permitted for early adoption by banks as of January, provided financial institutions with greater latitude to expand balance sheet-intensive businesses like prime brokerage. Specifically, these adjustments eased the stringent balance sheet caps that previously treated U.S. Treasurys and collateralized prime brokerage loans identically to riskier, uncollateralized assets under regulations like the Supplementary Leverage Ratio (SLR). By differentiating these assets, regulators afforded dealers greater flexibility to deploy balance sheet capital.
Darrell Duffie, a finance professor at Stanford University and a leading expert on financial stability, commented on the regulatory shift: "Capital did go down, so you have to say the system is somewhat more levered because of the relaxation in regulations. It’s not a good idea, but it hasn’t gotten dramatically out of whack." He further noted that the expanding market size and increased volatility naturally generate more trading, derivatives activity, and leverage, but argued that this isn’t inherently alarming.
Wall Street executives echo this sentiment, generally downplaying concerns over leverage. They emphasize their robust risk management frameworks, which include extensive collateral requirements, frequent stress testing, and sophisticated modeling to anticipate and mitigate potential problems. JPMorgan’s Barnum articulated this perspective last week: "Hedge fund leverage as a contributor of risk to the system is very much in the category of known unknowns. It doesn’t mean it’s riskless, but we kind of know what it is." This suggests a proactive and informed approach to managing complex risks, albeit within an environment that has seen a noticeable increase in overall leverage.
The convergence of a transformative technological boom, a more permissive regulatory landscape, and the strategic advantages of scale has propelled Wall Street’s leading investment banks to unprecedented heights in equities trading. While the current environment presents immense opportunities, the industry remains vigilant, balancing aggressive pursuit of growth with the imperative of managing the inherent risks in a dynamic and increasingly leveraged global financial system.
— CNBC’s Leslie Picker and Ritika Shah contributed to this report.
