Can Pagaya Scale Faster Using Its AI-Led Credit Platform?

Pagaya Technologies’ PGY business fundamentally revolves around artificial intelligence (AI)-powered decisioning and underwriting, which helps partners (banks and fintech originators) approve and fund credit more efficiently than traditional models. Its AI analyzes massive datasets to price risk and approve non-traditional credit that legacy systems might decline. This model increases approval rates and expands the total volume of credit that partners can offer to consumers.

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 hit an inflection point in 2025, with improving fundamentals and profitability. The company posted three consecutive quarters of positive net income in 2025, a turnaround from substantial losses in the prior years.

The robust performance suggests that the company’s AI model not only drives underwriting accuracy but also supports commercial traction and profitability, key ingredients for sustained growth.

Pagaya’s strength also 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.

Notably, PGY does not hold most loans on its balance sheet. Instead, it packages and sells them via securitizations (asset-backed securities or ABS), keeping credit risk largely with institutional investors. This capital-light, AI-centric design enables scalability. The more partners and loan applications the system processes, the more data it feeds back into its models (a data flywheel), improving accuracy and performance.

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

Pagaya’s shares have gained 33.2% in the past year, outperforming the industry’s 23.9% decline.

The PGY stock is currently trading at a 12-month forward price-to-sales (P/S) of 0.84X, which is below the industry average of 3.02X.

Over the past 30 days, the Zacks Consensus Estimate for PGY’s 2025 and 2026 earnings has been unchanged at $3.10 and $3.41, respectively. The consensus estimate indicates 273.5% and 10% year-over-year growth for 2025 and 2026, respectively.

Currently, Pagaya carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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

Zacks Investment Research