By Emily Dattilo

While 2025 is set to be a banner year for the fintech sector following a surge late this year, it may be too soon to buy the stocks, J.P. Morgan says.

After a slow start -- analysts Reginald Smith and Charles Peace described this year as "a tale of two halves" -- the aggregate market capitalization of the fintech stocks the bank covers has soared more than $65 billion since mid-September. Positive third-quarter results and management commentary, two rate cuts, and the presidential election have all contributed to the gains, they said in a Monday research note.

In 2025, lower benchmark interest rates and better access to funding from third parties should prompt higher loan-origination volume and better gross margins, the analysts said. Still, the bank said it is cautious about fintech lenders at their current prices and that a better time to buy could come after they report their fourth-quarter earnings.

Upstart Holdings shares, for example, appear to have priced in perfection, J.P. Morgan said. They downgraded the lending company's stock to Underweight from Neutral but lifted their target for the price to $57 from $45. The team said it likes the company's artificial intelligence lending platform but continues to struggle with a valuation that reflects the higher originations seen in 2022. It could take at least a few quarters to reach that level, they said.

Upstart stock fell 9.5% to $71.32 in trading Monday.

J.P. Morgan described Shopify and Affirm as core holdings, saying "both are growing revenue and volume at or above pandemic levels, defying broader e-commerce trends." The analysts, who rate both stocks at Overweight, raised their price target on Affirm to $74 from $56 and reiterated a target of $121 for Shopify.

Affirm stock increased 0.7% to $70.49, while Shopify shares dropped 2.3%.

They also boosted their price target on SoFi Technologies to $16 from $9 and maintained a Neutral rating, saying it has seen a notable rally since the election. SoFi stock slid 0.3% to $16.39.

The analyst said their top pick for 2025 is Kaspi.kz -- a fintech based in Kazakhstan -- arguing that its fundamentals remain strong and there are opportunities for it to improve communications with investors. They rate the shares at Overweight but slashed their price target to $137 from $154. American depositary receipts of Kaspi.kz gained 1.2% to $17.70.

Write to Emily Dattilo at emily.dattilo@dowjones.com

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December 02, 2024 09:44 ET (14:44 GMT)

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