By Mackenzie Tatananni

Fintech appears to have hit a wall after a decade of supersized venture capital investments, according to Truist Securities. However, the firm suggests there is still a way to play the sector.

Analysts with the firm initiated coverage Monday on a handful of big names in fintech while noting several risks.

The sector has historically benefited from high incremental margins and "meaningful growth tailwinds" including cash and check digitization. However, those catalysts are taking a back seat, and the analysts anticipate slower net revenue growth over in 2025 and 2026 compared with recent years.

That isn't to say you should avoid the industry. Instead, the Truist team urged investors to look for companies whose growth is driven by idiosyncratic factors.

Stay away from companies that are over-earning, either through an unsustainable high take rate or elevated margins, the analysts urged. PayPal is one name that comes to mind -- Truist initiated coverage on the shares at Sell with a $68 target price, suggesting potential 3% downside to Monday's price.

In the firm's view, in-line is the new beat. The majority of companies held their outlooks steady on the heels of the latest quarter, and the analysts expect the current period to usher in further gains.

"That said, we forecast relatively slower growth in 2026, due to a combination of a worse macro backdrop adversely impacting volume growth and continued take rate compression for some firms," they wrote.

Truist has some picks for investors who want to be on the safe side.

"If you want to sleep soundly at night, buy arguably the highest-quality duopoly in the world," the analysts said -- a nod to Mastercard and Visa. They conceded they had a "slight preference" for Mastercard, which is cheaper on a growth-adjusted basis.

Truist rates both stocks at Buy, with a $640 price target for Mastercard and $400 price target for Visa. Analysts were similarly bullish on Affirm Holdings, initiating at Buy with a $58 price target, even as they await clarity on the company's fiscal-year guidance.

When it comes to SoFi, the analysts have mixed feelings. While they cheer the company's Financial Services segment, they believe firmwide growth expectations need to be readjusted lower. Truist rates SoFi stock at Hold with a $14 target price.

Rounding out the list, along with PayPal, was Block. With limited flexibility in operating expenses, Truist expects Block to underperform peers in the near term. The firm rates shares at Sell with a $60 target price.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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June 02, 2025 14:48 ET (18:48 GMT)

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