Both Hedge Funds and Mutual Funds Are Buying These Fantastic Fintech Stocks, and That's a Great Signal for Investors to Buy

Hedge funds increased their tilt toward financials by 300 bps last quarter, and both Visa and Mastercard were cited as “shared favorites” among hedge funds and mutual funds. Card payment volume at both networks rose 10% YoY last quarter, while value-added services accelerated—Visa’s value-added services revenue +34% and Mastercard’s +20%—supporting an expected 16%–18% EPS growth over the next 3–5 years (vs. ~13.5% for Visa and ~16% for Mastercard per Wall Street averages). Despite trading at a premium (about 25–30x earnings), the article frames the outlook as sustainably double-digit earnings growth, implying a mildly positive read-through for the stocks.

Analysis

The immediate signal is not that Visa/Mastercard are cheap; it’s that institutional ownership is reinforcing the quality premium. When both hedge funds and mutual funds crowd into the same high-ROIC infrastructure names, the main near-term effect is lower drawdown risk and a bid on pullbacks, but also a higher bar for incremental outperformance because expectations migrate faster than fundamentals.

The real earnings lever over the next 1-3 quarters is mix, not just volume. Core payment growth is durable, but the upside to estimates comes from value-added services and cross-border mix; if either decelerates, the multiple can compress even with decent top-line growth. That also creates second-order pressure on adjacent fintechs and processors such as PYPL, SQ, AFRM, and parts of FIS/Fiserv where pricing power is weaker and feature parity is easier to replicate.

Over 6-18 months, the thesis is that these networks keep taking share of global spending while monetizing more software-like services, which supports premium valuation. The contrarian risk is crowding: if financials rotate out of favor or AI leadership reasserts, the ‘safe compounder’ trade can underperform despite good fundamentals. Falsifiers are a material slowdown in transaction volume, VAS growth falling back toward low double digits, or any regulatory move that caps fee economics.

Key Decisions for Investors

• Buy MA on any 3-5% pullback; time horizon 3-6 months. Risk/reward favors owning a structurally better compounder into earnings season, but trim if VAS growth slips below ~15%.
• Pair trade: long MA / short PYPL for 6-12 months. Thesis is network-rail pricing power versus wallet/processing margin pressure; cover if PayPal re-accelerates take rates or volume meaningfully surprises up.
• For investors already long V, use it as a core hold rather than an add at current multiples. Better entry is a market-wide risk-off tape or a post-earnings dip with volumes still running near double digits.
• Watch GS as a secondary beneficiary of the broader financials rotation, but treat it as a factor trade, not a company-specific call; the cleaner expression is via the payment franchises.