2 Fintech Stocks Set to Rebound in 2026

Upstart and Affirm, two beaten-down fintechs, are presented as undervalued growth stories: Upstart has originated over $50.4 billion in loans via 100+ banks for ~3 million customers and, with an enterprise value of $4.6 billion, trades at ~13x next year’s adjusted EBITDA; analysts forecast 2025–2027 revenue and adjusted EBITDA CAGRs of ~20% and ~35%, respectively. Affirm serves 24.1 million active consumers and 419,000 merchants, is valued at ~$24.7 billion and trades at ~16x next year’s adjusted EBITDA, with analyst CAGRs for fiscal 2025–2028 of ~25% (revenue) and ~125% (adjusted EBITDA); both names plunged ~90% and ~60% from highs amid inflation and high rates, but the article argues they should rebound if macro headwinds ease.

Analysis

Market structure: AI-driven credit platforms (Upstart, select bank partners) are the biggest beneficiaries if their models continue to expand addressable credit at lower loss rates; merchants and fintech-friendly issuers also gain from BNPL adoption (Affirm). Incumbent card issuers and specialty subprime lenders are losers as share shifts to tailored, data-driven credit pricing compress traditional interchange and unsecured loan margins. Relative valuations already price distress (UPST EV $4.6bn, ~13x next-year adj. EBITDA; AFRM EV $24.7bn, ~16x), implying market expects persistent margin pressure.

Risk assessment: Key tail risks are regulatory action on BNPL (CFPB-style caps/fee disclosures) and AI-model governance scrutiny that could force conservative credit overlays; prolonged higher-for-longer rates or a 200–500 bps jump in charge-offs would quickly erase current valuation cushions. Immediate (days) risk = earnings/volume shocks; short-term (weeks–months) = Fed rate path and 10y yield moves; long-term (quarters–years) = scale economics and partner retention. Hidden dependency: both firms rely on partner banks’ capital; bank stress or changes in risk appetite could curtail originations.

Trade implications: Favor long-duration, option-based exposure to UPST to capture 2025–27 EBITDA expansion (20% rev, 35% EBITDA CAGR consensus) while using tight risk controls; consider smaller, event-driven exposure to AFRM tied to merchant wins and delinquency trends. Cross-asset: fintech rally tied to rate cuts should tighten credit spreads, lower equity IV, weaken USD; monitor 10y Treasury <3.5% and Fed funds futures for entry signals.

Contrarian angles: Consensus underestimates Upstart’s moat if its AI demonstrably lowers net charge-offs by >100 bps versus peers — that would justify >20x forward EBITDA over 24–36 months. Conversely BNPL’s attractiveness may be overvalued if regulatory limits reduce APR economics by >25%, making AFRM’s current multiple vulnerable. Historical parallel: post-rate-cycle recoveries in online lending (2020–22) saw 2–3x rebounds once credit normalization and scale reappeared, but only after clear macro inflection.

Key Decisions for Investors

• Establish a 2–3% long position in UPST (equity or 12–18 month LEAPS calls) with a 12–24 month horizon; tranche buys: 50% now, 25% on 10y Treasury <3.5% or Fed pricing for cuts by H2 2025, 25% on two consecutive quarters of stable/lower charge-offs. Set stop-loss to trim 40% from entry if net charge-off rate increases by >200 bps or partner-originations drop >20% QoQ.
• Initiate a tactical 1–2% position in AFRM via 6–12 month call spreads (buy calls, sell higher strike) ahead of merchant/earnings catalysts but cap exposure until delinquency and regulatory clarity improve; reduce or exit if CFPB/legislative proposals impose effective APR caps or BNPL interchange economics decline >25%.
• Pair trade for relative value: go long UPST (1.5% notional) and short AFRM (1.5% notional) if early signs show UPST's net charge-offs falling >100 bps YoY while AFRM's repayment rates weaken; target 12–18 month horizon and rebalance monthly by performance.
• Use options to define risk: sell near-term puts on UPST for premium if willing to acquire at ~20–30% below current price, or buy protective collars if holding stock through the next 2 earnings releases. Exit/reevaluate positions if 10y yield >4.5% for >30 days or Fed signals no cuts into 2026, as macro makes fintech re-rating unlikely.