Goldman Sachs and JPMorgan Chase emerge as AI winners

U.S. megabanks provided evidence Tuesday that the global artificial intelligence boom isn’t just benefiting tech giants and chip makers.

goldman sachs and JP Morgan Chase Companies posted record quarterly profits, buoyed by strong increases in equity trading and investment banking.

JPMorgan Chief Financial Officer Jeremy Burnham told reporters that the fact that AI is “ubiquitous in financial markets” is behind Goldman’s 39% increase in revenue to $20.3 billion and JPMorgan’s 27% increase in revenue to $58 billion.

“These are buoyant environments with a lot of activity, big IPOs, big index rebalancings, a lot of activity in Asia,” Burnham said on Tuesday. “A lot of it is downstream of AI themes and is being done at scale on a global scale. It’s just a very, very, very active environment.”

This quarter showed that the AI ​​boom is creating winners far beyond Silicon Valley. meanwhile Nvidia and hyperscalers alphabet It has made a lot of headlines, but Goldman, JPMorgan, and other banks are benefiting from the massive capital flow into AI.

They advise on AI-related transactions, underwrite data center and power infrastructure financings, debt and equity, and facilitate a surge in deals as the global race to adopt the technology continues.

That’s creating a “ripple effect” across the U.S. economy, giving banks a plethora of new opportunities to offer lending and trading solutions across public and private markets, Goldman CEO David Solomon told analysts on Tuesday.

“We are in the midst of an AI capital investment supercycle, and there is demand for financing in every region of the world, across every industry, and across all financing vehicles,” Solomon said. Capex stands for capital expenditure and is an investment a company makes in physical assets such as factories.

He told analysts that Goldman is preparing for a three- to five-year investment cycle but is still in the early stages.

Goldman shares rose 8% in afternoon trading, while JPMorgan rose 2%.

Building AI is not new, but what has changed is that the scope of AI has moved beyond chips and software to include power providers and infrastructure players.

The biggest beneficiaries of this trend are Wall Street’s three largest firms: Goldman Sachs, JP Morgan, and morgan stanleysaid Mike Mayo, a banking analyst at Wells Fargo.

Mayo said the AI ​​investment boom “reached a tipping point” in the second quarter.

Mayo raised his price targets for Goldman and JPMorgan after Tuesday’s strong earnings results. Morgan Stanley is scheduled to report earnings on Wednesday.

The clearest evidence of AI’s impact is in stock trading, where global capital flows and large trades generated the quarter’s biggest revenue windfall.

Revenues from stock trading rose 86% to $6 billion at JPMorgan and 72% to $7.42 billion at Goldman. In total, the results exceeded analysts’ expectations by $4.4 billion.

Other big banks also benefited. bank of americaThe company, the second-largest U.S. lender by assets, saw its stock trading revenue rise 70% to $3.6 billion.

In support of this quarter, investors broadened their search for AI beneficiaries, pouring money into Asian markets including South Korea, Taiwan and Japan, Sufian Zuberi, president and co-head of global markets at Bank of America, told CNBC.

“People looked at AI trade and said, ‘What best reflects AI trade outside of the United States?'” Zuberi said. “We have American clients who are diversifying their funds and allocating more funds to Asia, including foundations, endowments and family offices.”

The impact of AI was also reflected in the bank’s strong advisory banking revenue in the second quarter.

Goldman’s investment banking revenue rose 55% to $3.4 billion, while JPMorgan Chase & Co.’s investment banking revenue rose 30% to $3.3 billion. This is a total of $1 billion more than analysts expected.

During the quarter, Goldman space x Advised Dominion Energy on its IPO and Alphabet’s $90 billion stock offering and sale to NextEra Energy, all of which were driven by the AI ​​cycle.

At Bank of America, investment banking fees rose 50% to $2.1 billion.

At the same time that AI is driving record fees, banks are starting to benefit from bringing the technology internally. This should allow you to increase your revenue while reducing the number of employees and other expenses.

“AI is advancing banking by helping streamline processes,” Zubieri said. “And banking is driving AI, because without banking you wouldn’t be able to fund all these data centers.”