TipRanks
5 min read
In This Article:
Artificial intelligence (AI) is transforming industries and unlocking entirely new business models. In the lending sector, few companies illustrate this shift as powerfully as Pagaya Technologies (PGY). Leveraging AI to drive its platform, Pagaya has delivered explosive growth—its stock has nearly doubled year-to-date—and has reached profitability ahead of many analysts’ expectations.
-
Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions
-
Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter
I’m bullish on the stock due to its strong upside potential and appealing valuation relative to industry peers. This appears to be a rare opportunity to invest in a profitable, AI-driven fintech at an attractive price.
Think of Pagaya as the savvy middleman of the lending world. The company doesn’t make loans directly to consumers. Instead, it leverages sophisticated data modeling and artificial intelligence to enhance financial institutions’ ability to make more informed lending decisions more quickly and accurately than traditional methods.
This approach has created a powerful network effect. Pagaya now works with over 31 lending partners, each contributing data that makes the AI smarter. The more partners they add, the better their algorithms become, making it harder for competitors to catch up.
What makes this business model particularly attractive is its fee-based revenue structure. Pagaya earns money from transaction fees and doesn’t take on the credit risk itself. They’ve also been smart about diversification, expanding beyond personal loans into auto financing and point-of-sale lending to reduce their dependence on any single market segment.
Furthermore, it utilizes its network to securitize lending assets with over 132 institutional investors. The company secured $6 billion through 17 asset-backed securitizations in 2024, becoming the leading issuer of personal loan ABS in the US. In the first quarter of 2025, it issued $1.4 billion via three transactions, including an AAA-rated Personal Loan ABS and an AA-rated Auto ABS, with expected net risk retention requirements of 4-5% on personal loan ABS deals.
Pagaya’s first-quarter 2025 results marked its first-ever positive net income, a milestone that arrived a full quarter ahead of schedule. Total revenue hit $290 million, representing solid 18% year-over-year growth. More importantly, fee revenue grew 19%, suggesting the core business is firing on all cylinders.
