AI chip investing in Asia boosts stock trading revenue for US banks

In short: More stock trading linked to Asian semiconductor companies is lifting Wall Street banks’ equities revenue, and Asia may soon beat Europe as a revenue source.

What's going on

Wall Street banks are making more money from equities trading, which is their business of helping clients buy and sell stocks and related products. The Financial Times reports that Asia is a major reason, as investors have been putting more money into companies tied to the AI semiconductor supply chain.

Those companies include South Korea’s SK Hynix, Taiwan’s TSMC, and China’s Cambricon Technologies. Bank executives described this as a “picks and shovels” approach to AI, meaning investors are buying the tools needed to build AI, like chips and the companies that make them.

In the most recent quarter, the largest investment banks reported a combined $25.7 billion in earnings from equities trading. Separate data from the World Federation of Exchanges shows trading volumes in Asia through the end of May were more than $52 trillion, close to North America’s $53.5 trillion.

People familiar with the matter told the FT that Asia could overtake Europe this year as a revenue source for banks such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley. The banks declined to comment.

What to watch

Banks say the push into Asia comes with risks. One concern is geopolitics, such as sanctions that can suddenly block access to assets, like what happened with Russia after its invasion of Ukraine. Another concern is concentration risk, meaning too many trades depend on the same theme, and if “the AI trade” falls at once, losses could spread quickly.

Source: Financial Times