The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, July 15 (Reuters Breakingviews) - Wall Street’s dynamic duo has plenty to celebrate. For one, Goldman Sachs GS.N and Morgan Stanley MS.N generated nearly $14 billion of combined revenue trading equity in the second quarter, some 70% more than a year ago, as they capitalized on artificial intelligence mania. There's a slight awkwardness to the bonanza, however, after years of talking up the virtues of transitioning into more predictable business. The challenge will be to parlay tech euphoria into something more durable.

Goldman boss David Solomon on Tuesday touted an astonishing 26% return on tangible equity, beyond the capital efficiency typically seen following the 2008 financial crisis. Morgan Stanley followed up with a similarly impressive return just shy of 27%.

Deal advisory and stock underwriting helped power the results, led by SpaceX's SPCX.O $75 billion initial public offering. The two investment banking giants rank one and two in worldwide M&A this year, with Goldman's consiglieri advising on more than $1 trillion of M&A transactions, according to LSEG data. Ebullient markets, which also have been swinging wildly, prompted clients to scramble for derivatives and financing.

Chatbot fever powered much of the activity. SpaceX is only the clearest example. In South Korea and Taiwan, local AI-tethered champions SK Hynix 000660.KS and TSMC 2330.TW have kept Goldman and Morgan Stanley busy. Seoul's benchmark KOSPI Index more than doubled from the start of the year through late June, only to collapse into a bear market that scarred retail traders who borrowed heavily.

Between the banking rivals, Morgan Stanley has long been valued higher, in part thanks to its more predictable wealth management business, meticulously built by former CEO James Gorman. Deals come and go; stickier businesses should theoretically strengthen over time.

On a multiple of book value, Morgan Stanley under boss Ted Pick has retained its premium, at 3.9 times compared to 3.1 times for Goldman. When it comes to expected earnings, however, Goldman has caught up, with both commanding almost 16 times.

Even when AI froth wanes, both Pick and Solomon will have expanded in ways that should help boost results longer-term. Goldman, for example, plowed billions of dollars into its worldwide banking and markets division last quarter, giving it the resources to support the wave.

Bankers and traders will have ways to benefit whenever the downturn comes, helping customers offload stock and restructure debt. After that, attention will turn quickly to whether Wall Street was able to engineer a swap from market momentum into sustainable finance. SpaceX shares just slipped below the IPO price; nothing goes up forever.

Follow Jonathan Guilford on X and LinkedIn.

CONTEXT NEWS

Morgan Stanley said on July 15 that it generated more than $21 billion in revenue during the second quarter thanks to strong deal activity and wild market swings that propelled the trading business. The investment bank also reached its target of $10 trillion in assets in wealth management.

Earnings per share for the three-month period were $3.46.

Rival Goldman Sachs on July 14 reported more than $20 billion in revenue in the quarter and earnings per share of $20.98. Its global banking and markets division delivered $7.4 billion in equity trading revenue, a 72% rise from the previous year.