Driven by the global surge in AI stocks, relaxed capital regulations, and increased lending to hedge funds, Wall Street’s major banks have already had a record-breaking year in equity trading—despite one quarter remaining.
According to company documents, as of September 30, the five major investment banks generated approximately $67 billion in equity revenue. This exceeds the group’s full-year 2025 revenue by $7 billion, even though 2025 itself was a record revenue year.
But the three Wall Street giants have captured the largest share of the industry's most profitable market: Goldman Sachs, JPMorgan Chase, and Morgan Stanley have collectively generated $52 billion in equity trading revenue so far this year, accounting for nearly 80% of total revenue.
Banking analyst Mike Mayo of Wells Fargo said: “In AI super-trading, the three giants see each other as their main competitors—that’s essentially it. They are in the best position to capitalize on this market.”
As the total market capitalization of the stock market expands, trading activity among institutional investors and retail investors in stocks, ETFs, and derivatives has increased, leading Wall Street banks to experience a historic surge in profits. This activity is further fueled by loans provided by banks to hedge funds through prime brokerage services, enabling hedge funds to leverage their positions.
Prime brokerage services—providing margin loans, securities lending, and other trading services to hedge funds—have become a key battleground and source of growth. The prime brokerage businesses of the three major players lie at the heart of their broader equities business narratives, as they serve the largest funds across markets and asset classes.
Last week, bank executives said demand for leveraged bets on AI hardware, hyperscale cloud providers, and chip suppliers has reached new heights.
At Goldman Sachs, equity financing activity surged 96% in the third quarter to a record $3.37 billion. JPMorgan Chase and Morgan Stanley did not disclose separate figures but indicated they observed similar trends.
JPMorgan Chase CFO Jeremy Barnum responded to an analyst’s question about funding needs during the bank’s third-quarter earnings call: “I like your phrase ‘insatiable demand for capital.’ That feels about right.”
Barnum said: “At a time when AI has become such an overwhelming topic... capital is being mobilized through a variety of different mechanisms.”
Wall Street executives say this demand has helped the trading divisions of the three giants shift from cyclical, transaction-based businesses to more sustainable, high-profit lending engines.
The performance gap between Wall Street giants and competitors such as Bank of America and Citigroup highlights the growing divide in capital markets.
JPMorgan Chase’s Global Head of Equities, Rachid Alaoui, said in an interview: “For clients, value is not just the price of a trade, but rather the breadth and continuity of service. You want a dealer that can provide a full suite of services across products and that accompanies you across regions—this is especially important during stressed markets and periods of volatility.”
Executing multi-billion-dollar bets, such as leveraged swaps on highly volatile AI stocks or industry ETFs, requires a massive balance sheet. Trading executives say the largest banks can absorb potential losses of up to $100 million without threatening their quarterly performance. Smaller or more niche banks cannot underwrite the risk of such large single trades, forcing them to decline the business or cede market share.
Bloomberg Intelligence analyst Herman Chan said that U.S. prime brokers have also benefited from European banks, including Credit Suisse, exiting the equity business.
Chan said, “Prime brokerage is one of the ultimate scale businesses. If you have a strong equities business, hedge funds will want to trade with you because you have a larger pool of counterparties to trade with.”
Selling shovels
Although the U.S. market has been swept this year by software and cloud computing giants, trading executives say the fastest-growing frontier for equity business is in Asia.
Alaoui said institutional investors are flooding into South Korea and Taiwan, targeting the "shovel sellers" of the AI supply chain: memory chip manufacturers and semiconductor makers that support data center construction.
For the three giants, which have a presence in Tokyo, Hong Kong, Seoul, and Mumbai, Asian trading is a goldmine. However, trading executives note that transaction taxes and stamp duties are included in gross revenue, artificially inflating the total volume of Asian prime brokerage business.
In addition, there is no universally accepted definition of what should be included in trading income, so some banks include business lines such as clearing services in their total trading revenue, while others do not, making peer comparisons difficult.
But this does not change the overall momentum of the business, which was driven by the stock market rally that began in October 2022—several weeks before OpenAI released ChatGPT.
Morgan Stanley CEO Ted Pick said on the company’s earnings call: “We are still in a stock-centric world. All else being equal, equities remain an attractive asset class.”
Analysts say that although the CEOs of Goldman Sachs and Morgan Stanley have stated that AI development is still in its early stages, if AI ultimately proves less transformative than hoped, these banks may be more severely impacted by an economic downturn than other banks.
This wave of enthusiasm has also raised concerns about the potential risks that hedge funds may bring.
The International Monetary Fund warned this month that rising leverage, crowded positions, and correlated selling by hedge funds could pose potential stability risks. The IMF estimates that global hedge fund assets have reached $13 trillion.
In August, JPMorgan Chase CEO Jamie Dimon said that industry-wide leverage was at "the highest level ever," but he did not suggest the risk was high enough to threaten financial markets.
Wall Street executives and analysts noted that the collapse of several hedge funds this summer did not cause alarm in the industry. Although the hedge fund Situational Awareness, managed by former OpenAI researcher Leopold Aschenbrenner, received the most attention, several smaller firms also experienced forced liquidations.
Alaoui of JPMorgan said prime brokers have learned to quickly seize margin call opportunities and rapidly reduce risk when market movements move against clients.
He said, "During the summer, some investors held positions that were forced to be liquidated. They reduced leverage, risk decreased, and the market moved forward."
Known unknowns
Another factor driving the growth of stock trading: The Trump administration’s regulators eased certain leverage rules for the largest U.S. banks, giving them more room to expand balance sheet-intensive businesses, including prime brokerage. The revised rules were finalized in 2025, and banks may adopt them as early as January.
By relaxing previous strict balance sheet limits that treated U.S. Treasuries and secured prime brokerage loans equally with higher-risk assets, regulators have given dealers greater flexibility in deploying balance sheet capital.
Stanford University finance professor and renowned expert in financial stability, Darrell Duffie, said: "Capital has indeed declined, so you have to acknowledge that, due to deregulation, the system has become somewhat more leveraged. It’s not a good idea, but it hasn’t gotten seriously out of control."
He said that market expansion and increased volatility could lead to more trading, derivatives activity, and leverage, but this is not inherently concerning.
Wall Street executives also downplayed concerns about leverage, noting that they use collateral and frequent stress tests to address issues proactively.
Last week, Barnum of JPMorgan said: "Leverage in hedge funds as a source of systemic risk is largely a 'known unknown.' This doesn't mean there's no risk, but we have a general idea of what it is."