Goldman Sachs and JPMorgan Chase emerged as AI winners

On Tuesday, US megabanks provided evidence that the rise of artificial intelligence around the world is not just benefiting tech giants and chip makers.

Goldman Sachs again JPMorgan Chase each posted record quarterly revenue, fueled by high profits in stock exchanges and investment banking.

Behind the surge in activity — Goldman’s revenue jumped 39% to $20.3 billion, while JPMorgan saw revenue rise 27% to $58 billion — the reality is that AI is “everywhere in financial markets,” JPMorgan CFO Jeremy Barnum told reporters.

“These are booming areas with a lot of activity, big IPOs, index rebalancing, a lot of activity in Asia,” Barnum said on Tuesday. “A lot of it is under the theme of AI, which is very well written around the world. It’s a very active, very active area.”

The quarter showed that the AI ​​boom is creating winners far beyond Silicon Valley. While Nvidia and hyperscalers including Alphabets grabbed a lot of headlines, Goldman, JPMorgan and other banks are profiting from massive capital flows into AI.

They advise on AI-related deals, financing data centers and energy infrastructure, underwriting debt and equity offerings, and facilitating the commercial expansion that has accompanied the global race to deploy the technology.

That’s creating a “disastrous effect” on the entire American economy and giving banks a host of new opportunities to provide financial and trading solutions across public and private markets, Goldman CEO David Solomon told analysts on Tuesday.

“We are in the middle of an AI capex super cycle where there are funding needs across all funding instruments, in every region of the world and in every single industry,” Solomoni said. Capex is short for capital expenditure, or the investment a business makes in tangible assets such as factories.

Goldman is preparing for a three- to five-year investment cycle that is still in its early stages, he told analysts.

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

While AI buildout is not new, what has changed is that it has expanded beyond chips and software to include energy providers and infrastructure players.

The main beneficiaries of this trend are the three biggest Wall Street firms: Goldman Sachs, JPMorgan and Morgan Stanleyaccording to Wells Fargo bank analyst Mike Mayo.

Growth in AI investment “reached a high point” in the second quarter, Mayo said.

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

The clearest evidence of AI’s impact came from equities, where global outflows and blockbuster transactions helped generate some of the biggest quarterly earnings surprises.

Equity trading profits rose 86% to $6 billion at JPMorgan and 72% to $7.42 billion at Goldman. Combined, that was $4.4 billion more than analysts had expected.

Other big banks also benefited. Bank of Americathe second largest US lender by assets, saw trading capital on equity rise 70% to $3.6 billion.

To help the quarter, investors widened their search for AI beneficiaries, pouring money into Asian markets, including South Korea, Taiwan and Japan, Soofian Zuberi, president and head of Global Markets at Bank of America, told CNBC.

“People are looking at the commercialization of AI and saying, ‘What are the best things it’s showing outside of the US?'” Zuberi said. “You have American clients who separate and allocate a lot of money in Asia, including foundations, endowments, and family offices.”

The impact of AI also came from strong advisory income for banks in the second quarter.

Investment banking revenue at Goldman jumped 55% to $3.4 billion, and rose 30% to $3.3 billion at JPMorgan Chase. That’s a combined $1 billion more than analysts had expected.

For the quarter, Goldman was the lead advisor to SpaceX IPO and Alphabet’s $90 billion equity issuance and advised Dominion Energy on its sale to NextEra Energy, all moves driven by the AI ​​cycle.

At Bank of America, investment banking funds jumped 50% to $2.1 billion.

At the same time as they are embracing AI-driven record fees, banks are starting to benefit from using the technology internally. That should help them increase revenue while keeping a lid on their accounting and other expenses.

“AI is driving banks by helping streamline processes,” Zubieri said. “And the bank is driving AI, because without the bank you can’t finance all these data centers.”