StoneCo vs. Upstart: Which Fintech Stock Has More Upside This Year?

As the global fintech market accelerates toward a projected $1.12 trillion by 2032, per the Fortune Business Insights report, investors are eyeing disruptors that can scale profitably while navigating evolving regulatory, competitive and macroeconomic environments. Two such players — StoneCo STNE and Upstart UPST — are carving distinct paths within this booming sector. StoneCo is entrenched in Brazil’s fast-growing micro, small and medium business (MSMB) market with a full-stack payments, banking and credit offering. It recently announced a strategic divestiture of a significant part of its software segment, signaling a sharpened focus on its core financial services and MSMB business. Meanwhile, Upstart is reimagining U.S. credit underwriting through AI-driven automation. Both companies offer strong innovation and growth potential, yet they diverge in geography, business model and execution strategy. Let’s weigh the pros and cons of each to find out which deserves a spot in your portfolio now.The Case for StoneCoStoneCo is rapidly cementing its dominance in Brazil’s underserved MSMB segment through an integrated fintech platform combining payments, credit and banking. Its first-quarter 2025 metrics were strong — MSMB TPV rose 17% year over year to R$119.5 billion, while active clients jumped 17% to 4.3 million. The adoption of the PIX instant payment system surged 95%, increasing deposits and monetization potential, and showcasing StoneCo’s ability to capitalize on structural shifts in digital finance.The company’s banking operations are scaling rapidly, with total retail deposits climbing 38% year over year to R$8.3 billion. R$6.3 billion was placed in time deposits as part of StoneCo’s “cash sweep” strategy, contributing to the diversification of its funding sources. Its R$1.4 billion credit portfolio remains well-managed, with NPLs at just 4.57% and a cost of risk of 10% — an encouraging sign for investors wary of default risks in emerging markets.StoneCo’s strategic divestiture of a significant part of its software segment, including the R$3.41 billion sale of Linx, marks a pivot back to core financial services. This streamlining is expected to enhance margins and operational focus. Already, 38% of clients are “heavy users,” leveraging three or more solutions, up from 26% last year, underscoring solid product-market fit and bundling success.However, risks remain. Management expects some deceleration in TPV growth due to ongoing repricing efforts and a focus on profitability over volume.The Case for UpstartUpstart’s edge lies in its proprietary AI-based underwriting platform, which is upending traditional FICO models. In the first quarter of 2025, the company fully automated 92% of loans on its platform, while conversion rates rose to 19% — a sign of improving borrower experience and efficiency. These metrics highlight the company’s ability to scale with minimal incremental costs.The company is diversifying beyond personal loans into other verticals, such as auto refinancing, HELOCs and small-dollar credit. Auto originations surged 42% sequentially, and HELOC volumes grew 52%, offering new avenues for revenues. Its marketplace model has diversified funding across banks, credit unions and private credit providers, now with more than 50% of volume backed by committed capital. With 32% of originations now from super-prime borrowers, credit quality is on an upswing, while its model factors in education, employment and broader financial behavior, enhancing precision.Yet, challenges persist. The shift toward super-prime customers is pressuring take rates due to heightened competition. Meanwhile, newer product categories are still scaling, with modest contribution margins. Elevated interest rates and global uncertainty remain headwinds, and monetizing innovations may take time. Nonetheless, Upstart’s technology leadership gives it a strong long-term runway, provided it can balance growth with profitability.How Do Zacks Estimates Compare for STNE & UPST?The Zacks Consensus Estimate for StoneCo’s 2025 sales and EPS implies a year-over-year increase of 7.6% and 10.4%, respectively. EPS estimates have been trending northward over the past month.Image Source: Zacks Investment ResearchMeanwhile, the consensus estimate for Upstart’s 2025 sales implies a year-over-year rise of 59.5%. EPS estimates have been trending upward over the past month.Image Source: Zacks Investment ResearchValuation: STNE vs. UPSTFrom a valuation perspective, we note that StoneCo shares are trading cheap, as suggested by the Value Score of B. However, Upstart shares are currently overvalued, as implied by the Value Score of F. In terms of forward 12-month Price/Sales (P/S), STNE stock is trading at 1.39X, below its three-year median, while Upstart is currently trading at 6.64X, which is well ahead of its three-year median.Image Source: Zacks Investment ResearchPrice Performance: STNE vs. UPSTSo far in the year, shares of STNE have outperformed UPST and the S&P 500 composite.Image Source: Zacks Investment ResearchConclusionStoneCo and Upstart represent two compelling fintech stories with different strengths —StoneCo offers profitable growth in an emerging market with deepening product penetration, while Upstart is pioneering AI-led disruption in credit underwriting. While Upstart’s innovation moat is notable, StoneCo’s combination of scale, diversification, disciplined credit growth and shareholder returns gives it a more balanced and de-risked upside for 2025. Even though both companies currently carry a Zacks Rank #3 (Hold) each, going by valuation, STNE is having the better hand at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Higher. Faster. Sooner. Buy These Stocks NowA small number of stocks are primed for a breakout, and you have a chance to get in before they take off.At any given time, there are only 220 Zacks Rank #1 Strong Buys. On average, this list more than doubles the S&P 500. We’ve combed through the latest Strong Buys and selected 7 compelling companies likely to jump sooner and climb higher than any other stock you could buy this month.You'll learn everything you need to know about these exciting trades in our brand-new Special Report, 7 Best Stocks for the Next 30 Days.Download the report free now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report StoneCo Ltd. (STNE): Free Stock Analysis Report Upstart Holdings, Inc. (UPST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks