Will Pagaya's AI-Driven Model Support Its Growth Momentum?

Pagaya Technologies Ltd. PGY operates a platform that uses artificial intelligence (AI) and vast datasets to underwrite and orchestrate consumer credit for partners (like banks, fintech lenders and auto finance providers), while connecting those loans with institutional investors.

In effect, Pagaya’s network bridges Wall Street and Main Street through AI, as the company puts it. After a challenging period in 2022-2023, Pagaya, a leading fintech innovator, has hit an inflection point in 2025, with improving fundamentals and profitability. The company posted positive net income for the second consecutive quarter in the three months ended June 30, 2025. Its record GAAP net income of $16.7 million compared favorably with a net loss of $74.8 million incurred in the prior-year quarter.

Pagaya’s strength lies in its diversified, scalable model. The firm leverages a broad ecosystem of 145 institutional funding partners and numerous banks and fintech originators. This diversity enables multiple revenue streams, such as fee income from managing portfolios and gains on loan sales, while reducing exposure to any single lender or product. PGY’s capital-light approach further mitigates risk, as loans are swiftly sold through securitizations or forward-flow agreements, leaving little credit risk on its balance sheet.

Product innovation is another tailwind. Initiatives like its Direct Marketing Engine and FastPass in auto lending have expanded partner funnels and streamlined application journeys. New AAA-rated ABS deals in both auto and POS verticals not only validate Pagaya’s asset quality but expand capacity — more than $1B in effective POS lending capital alone.

Business Model of Pagaya’s Peers

Like PGY, Upstart Holdings, Inc. UPST is an AI-powered lending marketplace that earns fees by connecting consumers to bank-originated loans, while offering lenders better risk insights and consumers broader access to credit.

Upstart also aspires to become capital-light but often holds loans on its balance sheet temporarily. Its core business model involves finding financing for loans after its network of bank and institutional partners originates them. Upstart partner banks can finance the loan by keeping it on their balance sheet. The bank can sell the whole loan on Upstart’s platform or use forward flow agreements from institutions that commit to buying a specific volume or type of loan originated on the Upstart platform in the future.

Another close competitor of PGY is LendingTree TREE. But unlike PGY, TREE is an online financial services marketplace, not a lender. It matches consumers with financial product providers like mortgages, personal loans, credit cards and insurance.

LendingTree does not underwrite, originate, or hold loans, and hence, its balance sheet is not credit-heavy. TREE’s balance sheet is detached from revenue generation. The company is primarily structured to support a fee-based digital marketplace, not balance sheet lending. By leveraging proprietary algorithms, machine learning and integrated digital tools, the LendingTree platform offers real-time matching and personalization.

PGY’s Price Performance, Valuation & Estimate Analysis

Investors are bullish on the PGY stock, which has skyrocketed 265.4% so far this year, outperforming the industry’s 5.6% rise.

Pagaya’s stock is currently trading at a 12-month forward price-to-sales (P/S) of 1.79X, which is below the industry average of 3.45X.

Over the past 30 days, the Zacks Consensus Estimate for PGY’s 2025 and 2026 earnings has moved higher to $2.65 and $3.43, respectively. The consensus estimate indicates 219.3% and 29.3% year-over-year growth for 2025 and 2026, respectively.

Currently, Pagaya carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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