Artificial intelligence (AI) has revolutionized many sectors and industries, enabling greater productivity and efficiency. The computer and technology sector has been transformed by the artificial intelligence boom as computing power continues to grow exponentially. AI is leading the medical sector into a new era of drug discovery, helping to find new treatments faster and bring new drugs to market more efficiently.
AI is changing the financial industry as machine learning algorithms revolutionize old processes that were previously performed only by highly trained actuaries and underwriters. Here are four AI-powered fintech companies that are changing the future of the finance and financial services sector.
Upstart Holdings: Revolutionizing the Lending Industry with AI Models That Mitigate Bias
The lending industry is dominated by rigid, structured and standardized processes used to determine the creditworthiness of borrowers. In a highly regulated industry, the use of credit bureaus to calculate credit scores and FICO scores is a standard trusted by all financial institutions. Upstart Holdings Inc. NASDAQ: UPST sought to break the mold by using artificial intelligence to better assess creditworthiness. Its AI models go beyond traditional credit scores, analyzing more than 1,600 variables to create a more complete picture of borrowers.
Sophisticated machine learning algorithms aim to identify creditworthy borrowers with limited credit histories who would be overlooked by traditional systems. Their AI models attempt to reduce bias in lending decisions by considering a wider range of data, leading to fairer results, especially for borrowers with different backgrounds.
The company is approaching profitability as losses narrowed to 7 cents per share in the third quarter of 2024. Revenue grew 20.4% YoY to $162 million, well ahead of consensus estimates of $149.32 million. Loan originations increased 30% YoY to 188,149, totaling $1.6 billion worldwide platform. The company provided fourth-quarter 2024 growth guidance of $180 million, beating consensus estimates by $162.26 million, as ROI is forecast to reach 59%.
Pagaya Technologies: AI Network Helps Institutions Better Analyze Borrowers
Pagaya Technologies Today
Pagaya Technologies
(As of 5:52 p.m. ET)
- 52 week range
- $8.20
▼
US$20.50
- Target price
- $22.11
Continuing the theme of creating more accurate borrowing profiles, Pagaya Technologies LLC NASDAQ: PGY uses artificial intelligence to help change the consumer lending market. Their AI network helps banks and financial institutions better assess creditworthiness with more accurate scores using data science. This leads to an increase in the ability of banks to issue more loans and more consumers to receive loans.
This allows lenders to make more loans to a wider and more diverse range of borrowers. It also helps institutional investors better evaluate loan purchases made on their platforms, making it a win-win for the lender, borrowers and investors who finance the loans.
Pagaya became profitable in the third quarter of 2024, posting earnings per share of 44 cents, beating analysts’ estimates by 63 cents. Revenue grew 21% YoY to a record $257.23 million, beating forecasts by $4.08 million. Consumer loan network grew 15% YoY and point-of-sale (POS) network grew 67% YoY . Top 5 bank Elavon and US Bank’s POS business are now connected to Pagaya’s network.
OppFi: Using Artificial Intelligence to Serve the Unbanked Population
OppFi today
(As of 12/02/2024 ET)
- 52 week range
- $2.35
▼
$8.54
- P/E ratio
- 48.07
- Target price
- $6.50
More than 60 million Americans lack access to traditional credit, as 72% of Americans were denied a line of credit and 51% were denied a personal loan in the past year. OppFi Inc. New York Stock Exchange: OPFI is an artificial intelligence-powered platform that helps banks offer installment loans to low-income communities.
The platform provides services such as SalaryTap, which is a secured installment loan product that uses payroll deductions to fund small loans to consumers. OppLoans helps provide loans through its banking partners to unbanked consumers who often lack traditional credit options. OppFi uses artificial intelligence to analyze a broader range of data to assess creditworthiness, create personalized loan offers, and automate lending decisions.
OppFi reported third-quarter earnings per share of 33 cents, beating the consensus estimate by 12 cents. Revenue rose 3.2% YoY to $126.3 million, beating estimates by $2.29 million. The net write-off rate decreased by 370 bps. to 32.5%, while net profit margin increased by 710 bps. to 21.9%, and adjusted net profit margin increased by 660 bps. up to 19.6%. The recovery of previously written off receivables increased by 30% compared to the same period last year. The company raised its full-year profit forecast by 20% and paid its first special dividend of 12 cents per share.
Lemonade: AI-powered insurance company is changing the industry
Lemonade today
(As of 5:52 p.m. ET)
- 52 week range
- $14.03
▼
$53.85
- Target price
- $30.43
AI-powered risk models enable personalized insurance policies and automated claims processing served by AI-powered chatbots. Lemonade Inc. New York Stock Exchange: LMND does. Users can obtain renters, auto, homeowners, pet and life insurance policies through the app or website in minutes. AI is integrated into all aspects of operations. The more types of insurance products you receive, the more discounts you get thanks to custom packaging.
The company has faced a lot of criticism and many doubters questioning the effectiveness of AI underwriting compared to human actuaries, but the company may be proving them wrong. Lemonade is still losing money, as evidenced by its Q3 2024 EPS loss of 95 cents, but still beats the consensus estimate by 7 cents. Revenue rose 19.3% YoY to $136.6 million, beating consensus estimates of $129.1 million.
Investors were relieved as losses were better than expected given this year’s high-profile hurricanes. The market is favoring this as the stock is up 222.8% year-to-date (YTD), driven by a 30.67% short interest in the stock as of Nov 27, 2024.
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