If traditional bank stocks represent the financial sector’s past and present, then SoFi Technologies (NASDAQ:SOFI) stock might represent the future of banking. There’s certainly no guarantee that SOFI stock will go up after its recent drawdown. It’s reassuring that it’s a chartered bank and not a personal finance app, but it’s still a startup competing against much bigger banks.
Yet, at least one group of analysts from a mega-bank actually had good things to say about SoFi Technologies. It just goes to show that SoFi is gaining legitimacy and acceptance in 2023. So, open-minded investors can balance their other, more traditional financial sector holdings with a small position in SOFI stock.
Multiple Catalysts for SOFI Stock
The future of any disruptive startup business is always uncertain. However, there are some catalysts that could provide significant tailwinds for SoFi Technologies.
First, the Federal Reserve should finish raising interest rates at some point. It’s difficult to know when this will happen. However, Federal Reserve Chairman Jerome Powell did recently indicate that the Fed “will continue to move carefully” with interest rate hikes.
Certainly, an eventual shift to more accommodative monetary policy would incentivize borrowing and lending activity, which in turn would benefit SoFi Technologies.
Furthermore, the pause on required repayments of federal student loans has ended. That’s bullish for SoFi Technologies, which generates revenue from helping people refinance their student loans.
Then, there’s the recovery from the deposit outflow crisis from earlier this year. As you may recall, some bankers hastily withdrew their funds because they feared a potential banking failure contagion. Now, that crisis has largely passed and people are trusting their banks again.
As evidence of this, SoFi Technologies grew its total deposits by 23% quarter over quarter to $15.7 billion in the third quarter of 2023.
SoFi Technologies Gets Kudos From a Rival Bank
Considering SoFi Technologies’ blockbuster third-quarter results, even the company’s competitors are surely taking notice of the company’s growth. Consider this: SoFi’s GAAP-measured net revenue grew 27% year over year to $537.2 million in Q3 2023.
Moreover, SoFi Technologies’ total member count surged 47% year over year to more than 6.9 million. Hence, it’s not an exaggeration to say that SoFi poses an actual threat to traditional banks.
Thus, it’s interesting that Morgan Stanley analysts showed some respect to SoFi Technologies. They upgraded SOFI stock from “underweight” to “equal weight,” even after having downgraded it to “underweight” in July.
Notably, the Morgan Stanley analysts “walked away from 3Q’s results incrementally more positive on the near-term outlook into 2024.” Also, the analysts feel that SoFi Technologies’ non-lending segments are “set to reaccelerate into 2024 as Lending revenues slow.”
Plus, the Morgan Stanley analysts saw a “more balanced risk-reward skew” since SOFI stock traded closer to their $7 price target. Those aren’t glowing compliments, but any positive regard from big-bank analysts bodes well for SoFi Technologies.
SOFI Stock: A Bold Bet on the Future of Finance
SoFi Technologies is a real bank and it might upend the old-school banking system as we know it. Yet, it’s risky to wager on a startup business with such a disruptive vision for the future.
Still, SoFi Technologies’ blowout quarter cannot be denied. Even Morgan Stanley’s analysts felt compelled to give SoFi a few quasi-compliments. Therefore, SOFI stock gets a “B” grade. It’s not for everyone, but volatility-tolerant investors can choose to add a few SoFi shares to a diversified basket of financial sector stocks.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
