Better Fintech Stock: Upstart vs. SoFi Technologies

Published in Science and Technology on Sunday, August 17th 2025 at 5:46 GMT by The Motley Fool
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Which of these fintech plays has a brighter future?

Better Fintech Stock: Upstart vs. SoFi Technologies

In the rapidly evolving world of financial technology, or fintech, investors are constantly on the lookout for companies that can disrupt traditional banking and lending while delivering strong returns. Two prominent players in this space are Upstart Holdings (NASDAQ: UPST) and SoFi Technologies (NASDAQ: SOFI). Both have garnered significant attention for their innovative approaches to lending and financial services, but they operate in somewhat different niches within the fintech ecosystem. Upstart focuses primarily on artificial intelligence-driven lending, while SoFi positions itself as a one-stop-shop digital bank targeting younger, tech-savvy consumers. This comparison delves into their business models, recent performance, growth potential, risks, and ultimately, which one might be the superior investment choice for those betting on the future of fintech.

Let's start with Upstart. Founded in 2012, Upstart revolutionized the lending industry by leveraging AI and machine learning to assess creditworthiness. Unlike traditional lenders that rely heavily on FICO scores, Upstart's platform analyzes a broader array of data points—such as education, job history, and even browsing behavior—to approve loans more accurately and inclusively. This approach has allowed it to partner with banks and credit unions, essentially acting as a technology provider that enhances their lending capabilities. Upstart earns revenue through fees on loans originated via its platform, and it has expanded into auto loans and small business lending beyond its core personal loans segment.

Upstart's growth story has been nothing short of explosive at times. During the low-interest-rate environment of 2020 and 2021, the company saw massive loan volumes as consumers refinanced debts and borrowed freely. Revenue skyrocketed, and its stock price followed suit, turning early investors into winners. However, the company faced headwinds when interest rates began rising in 2022. Higher rates led to reduced loan demand, tighter credit standards, and a slowdown in originations. For instance, in recent quarters, Upstart has reported declining revenue year-over-year, with loan volumes dropping significantly from their peaks. Despite this, the company has shown resilience by improving its AI models and securing new partnerships. Management has emphasized cost-cutting measures and a focus on profitability, aiming to weather the economic cycle. Looking ahead, Upstart's long-term potential lies in its scalable technology. If interest rates stabilize or decline, loan volumes could rebound, and its AI edge could capture more market share from traditional lenders. Analysts project that as the economy improves, Upstart could return to high-double-digit growth rates, making it an attractive pick for risk-tolerant investors who believe in AI's transformative power in finance.

Shifting gears to SoFi Technologies, this company has a broader ambition: to become the "AWS of fintech," providing a comprehensive suite of financial products through its app. Originally starting as a student loan refinancing platform in 2011, SoFi has since expanded into personal loans, credit cards, investing, banking, and even cryptocurrency trading. A key milestone was its acquisition of a national bank charter in 2022, which allows it to hold deposits and offer FDIC-insured accounts, reducing its reliance on third-party banks. This move has been pivotal, enabling SoFi to build a sticky ecosystem where members (as it calls its customers) can manage everything from checking accounts to mortgages in one place.

SoFi's performance has been more consistent compared to Upstart's volatility. The company has reported steady membership growth, surpassing 8 million members recently, with a focus on high-income millennials and Gen Z users. Revenue streams are diversified: lending remains the largest segment, but banking and technology platforms are growing rapidly. In fact, SoFi has achieved profitability in recent quarters, a rarity among fintech upstarts, thanks to increasing deposits that provide low-cost funding for loans. For example, its net interest margin has improved as it benefits from higher interest rates, unlike pure lenders who suffer from them. SoFi's Galileo platform, which provides backend tech to other fintechs, adds another layer of revenue stability. Challenges include competition from established banks like JPMorgan Chase and other digital players like Chime, as well as regulatory scrutiny in the banking space. However, SoFi's path to sustained profitability and its expanding product lineup position it well for cross-selling opportunities. Projections suggest continued membership growth and revenue increases in the mid-teens percentage range annually, with potential for even higher if it captures more of the $1 trillion student loan market or expands internationally.

Now, comparing the two head-to-head, several factors come into play. Valuation is a critical lens: Upstart trades at a lower price-to-sales multiple, reflecting its recent struggles, while SoFi's is higher due to its profitability and diversification. Upstart's business is more cyclical, tied closely to interest rate fluctuations and economic conditions—booming in good times but vulnerable in downturns. SoFi, with its banking charter and diverse revenue, offers more stability, acting almost like a digital neobank with growth levers beyond just lending. Risk-wise, Upstart's heavy reliance on AI could be a double-edged sword; while innovative, it faces potential regulatory changes around data privacy and algorithmic bias. SoFi, meanwhile, must navigate the complexities of being a regulated bank, including capital requirements and compliance costs.

In terms of growth prospects, Upstart could deliver outsized returns if its AI platform disrupts lending on a massive scale, potentially expanding into new verticals like insurance or international markets. SoFi's growth feels more predictable, driven by user acquisition and product adoption, with ambitions to become a full-fledged financial super app. Both companies are unprofitable on a GAAP basis at times, but SoFi has crossed into positive territory, giving it an edge in investor confidence.

Ultimately, the "better" stock depends on your investment horizon and risk appetite. For those seeking high-reward potential in a recovering economy, Upstart might edge out as the pick, especially if AI continues to gain traction in finance. Its technology could lead to exponential growth once macroeconomic headwinds ease. However, for a more balanced, long-term hold, SoFi Technologies stands out as the superior choice. Its diversified model, path to consistent profitability, and ability to thrive in various interest rate environments make it less volatile and more resilient. Investors should consider their portfolios: Upstart for aggressive growth seekers, SoFi for those prioritizing stability in the fintech revolution. As the sector matures, both could be winners, but SoFi's broader moat and execution so far tip the scales in its favor. (Word count: 928)

Read the Full The Motley Fool Article at:
[ https://www.fool.com/investing/2025/08/17/better-fintech-stock-upstart-vs-sofi-technologies/ ]

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Better Fintech Stock: Upstart vs. SoFi Technologies | The Motley Fool

Better Fintech Stock: Upstart vs. SoFi Technologies

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