AI Boom Widens Divide as Banks Expand Leverage

The five biggest investment banks generated about $67 billion in equities revenue through Sept. 30, according to company filings. That’s $7 billion more than they earned in all of 2025, which was itself a record year. Goldman Sachs, JPMorgan Chase and Morgan Stanley took in $52 billion, nearly 80% of the total.

The money comes from an AI trade that has rewarded asset owners and left others watching. JPMorgan Asset Management warns that this divide could become a source of volatility.

A Boom That Isn’t Evenly Shared

A team led by George Gatch, CEO of JPMorgan Asset Management, said lower-earning households are struggling while higher earners do well. The gap, the team said, isn’t likely to close soon. Capital gains are expected to grow faster than labor income in coming years. The S&P 500 has risen 70% in five years. Households in the top income quintile held $56.3 trillion in stock and mutual-fund wealth in the second quarter, or 87% of the household total, according to Federal Reserve data.

The bank describes the K-shaped economy as “a metastable state — surprisingly durable, but sensitive to stress or shock.” Its list of risks merits close attention. Workers could demand more resources than economists expect. Attempts to redistribute AI-related capital returns could discourage investment and trigger knock-on effects. If the investment boom doesn’t significantly raise U.S. productivity, growth could slow because of what the bank calls “widespread capital misallocation.” JPMorgan’s base case sees AI lifting productivity growth to about 1.2% annually, but the bank says it’s unclear how those gains will reach lower- and middle-income Americans.

The report also noted that even higher-earning Americans are cutting back on spending amid hotter inflation and high gas prices.

Leverage Fuels the Trade

Lending helps fuel the banks’ windfall. Prime brokerages have lent to hedge funds so they can increase their bets, and executives said demand for leverage to invest in AI hardware, hyperscalers and chip suppliers hit new highs. Goldman’s equities financing revenue jumped 96% in the third quarter to a record $3.37 billion. JPMorgan CFO Jeremy Barnum described “insatiable demand for capital.”

The International Monetary Fund warned this month that rising leverage, crowded positions and correlated selling by hedge funds could threaten stability. It estimates global hedge-fund assets at $13 trillion. In August, Jamie Dimon said industrywide leverage was “the highest it’s ever been,” though he stopped short of calling it a threat. Several hedge funds collapsed or unwound positions over the summer, including Situational Awareness, run by former OpenAI researcher Leopold Aschenbrenner. JPMorgan’s Rachid Alaoui said the system absorbed the shock: “They deleveraged, risk came down, and the market moved on.” Barnum classed hedge fund leverage among “known unknowns.”

Looser Rules, Bigger Balance Sheets

Trump administration regulators eased some leverage rules for the largest banks, finalized in 2025, and banks could adopt the changes as early as January. The revisions loosened balance-sheet caps that had treated Treasurys and collateralized prime-brokerage loans like riskier assets. Stanford finance professor Darrell Duffie said 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.” Executives said they manage the risks with collateral and frequent stress testing.

Scale matters. Trading executives said the biggest banks can absorb potential $100 million losses without threatening quarterly results. Smaller or more specialized banks may turn down such business or lose share. Bloomberg Intelligence analyst Herman Chan called prime brokerage “one of the ultimate scale businesses.”

Demand Still Outruns Supply

On the ground, demand is real. Nebius’s Marc Boroditsky said AI computing prices are rising more than expected, and that the company would sell out its 2027 capacity if it brought it online. Crusoe CEO Chase Lochmiller said older Nvidia chips fetch higher prices than when they were first deployed. SpaceX reported its AI business revenue rose ninefold to $7.56 billion. Still, debt worries over data-center construction have hit shares of CoreWeave, Iren and Nebius over the past month.

Markets steadied this week after Friday’s 1.1% S&P 500 drop. The Cboe Volatility Index climbed from below 16 to above 22 in two hours. Ahead are Moody’s review of France’s Aa3 rating, the U.K. Autumn Budget on Oct. 28, the Federal Open Market Committee meeting that same day, and earnings from about half the S&P 500 by market cap between Oct. 28 and Nov. 3.

Why This Matters: The facts describe a market where gains are concentrated and increasingly funded with borrowed money. Eighty-seven percent of household stock wealth sits with the top quintile, and the three biggest banks are lending heavily against AI bets while regulators have loosened some capital constraints. That works while prices rise and demand outruns supply. It’s less comfortable if AI productivity gains disappoint. JPMorgan’s warning matters for policy: it flags redistribution of capital returns as a risk to investment. For readers, private capital is driving the boom, and leverage and expectations—not a shortage of demand—are the main stress points.