The Smartest Fintech Stocks to Buy With $500 Right Now

Key Points

• Fintech stocks are hot, as the risk-on sentiment has swept the market.

• Upstart is thriving after updating its AI model and making some other key changes.

• Sezzle is delivering sizzling growth thanks to a differentiated approach to BNPL.

• 10 stocks we like better than Upstart ›

Fintech stocks have long been volatile. The sector surged during the pandemic before crashing in the 2022 bear market. However, as digital payments continue to take share from traditional forms of payment and AI ups the stakes in fintech, sector stocks have started to rally again, benefiting from the broader risk-on sentiment since President Trump paused the Liberation Day tariffs.

Several fintech stocks have soared since then, but there are two in particular that look poised to deliver multibagging returns if you have a little bit of cash to invest. Let's take a closer look.

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1. Upstart Holdings

Upstart (NASDAQ: UPST) was a fintech darling of the pandemic era as the stock posted triple-digit growth and delivered double-digit profit margins. However, when interest rates rose, demand for loans from its platform dried up, profits disappeared, and the stock was forgotten.

Since then, Upstart has improved its technology with better models that have led to higher conversion rates. It has strengthened its capital with new funding sources and streamlined its business, and now expects to be profitable again this year.

In addition to those improvements, Upstart is starting to tap into massive loan markets in auto and home as it continues to roll out those offerings in new states. As a result, the business is stronger than ever, though that's not reflected in its stock price. While Upstart stock has gained in recent weeks, the stock is still down roughly 80% from its peak in 2021, and its market cap is just $7 billion.

For a company chasing a massive addressable market and trying to disrupt traditional FICO scores, Upstart has the potential to be much larger than a $7 billion company, especially if interest rates fall again, stimulating loan demand. Even at current interest rates, the business is thriving. In the first quarter, revenue rose 67% to $213 million as fee revenue climbed 34% to $185 million.

Transaction volume doubled to 240,706, showing the benefit of its new, more advanced Model 18. If Upstart can maintain its momentum, the upside potential from here is considerable.

2. Sezzle

Like Upstart, Buy now, pay later (BNPL) companies also had a moment during the pandemic, soaring as demand for the new kind of payment took off before interest in the sector faded in the 2022 bear market.

However, BNPL hasn't gone away, and one of the fastest-growing companies in the space is now Sezzle (NASDAQ: SEZL), a BNPL that initially went public in Australia and has grown its business with a different strategy from most of its competitors. Instead of focusing on the merchant, Sezzle has prioritized the consumer, growing its business through subscription programs, rewards, and new product features like auto-couponing, which automatically finds coupons for customers as they shop.

That strategy seems to be resonating as Sezzle's growth rate has accelerated into the triple digits.

In its first quarter, the company reported revenue growth of 123% to $104.9 million as gross merchandise volume (GMV) rose 64.1% to $808.7 million.

Sezzle's profit margins have also soared alongside that growth as the company reported an operating margin of nearly 50%, showing the business model is highly scalable. The company has also managed its credit risk successfully, and cuts customers off from the product if they miss a payment.

Investors are valuing the stock like its growth story is coming to an end, but BNPL is also a massive addressable market, competing with credit cards, so there's plenty of runway for the company to grow.

At a market cap of $4.5 billion, the stock could easily be a multibagger from here, even as it's already up more than 800% over the past year.

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Jeremy Bowman has positions in Upstart. The Motley Fool has positions in and recommends Sezzle and Upstart. The Motley Fool has a disclosure policy.