Which financial stocks are best positioned for AI?
Seeking Alpha analysts Labutes IR, Dr. Christopher Davis of Quad 7 Capital, and Daniel Jones weigh in.
Labutes IR: Generally speaking, I think AI can be beneficial for the financial sector, as it should allow financial institutions to operate more efficiently and provide faster and better service to customers. This means larger financial institutions like JPMorgan (JPM) or Visa (V) should have, theoretically, some advantage compared to smaller players due to stronger financial resources and balance sheets to invest significantly in AI.
Having said that, I see neobanks, such as Sofi Technologies (SOFI) or Nu Holdings (NU), particularly well prepared to benefit from AI because their business models are usually based on digital infrastructures and cloud-native platforms, giving them a structural advantage within the financial sector to deploy AI tools successfully and be on the edge of technology compared to traditional financial companies.
Christopher Davis: Finding financial stocks that could benefit is much harder than finding potential victims.
The largest traditional banks that have billions to invest into proprietary research and AI development can withstand the blow, if not benefit. Institutions like JPMorgan Chase (JPM) and Bank of America (BAC), along with investment banks like Goldman Sachs (GS) and Morgan Stanley (MS), have the resources to build custom large language models that automate back-office operations. They can use the tech to enhance fraud detection and provide high-speed algorithmic trading and decision-making. So, while they could take a hit on fees from having human managers or decision-makers work with customers, they can make it up on the back end by reducing labor expenses for compliance, data entry tasks, and underwriting, as well as simply customer service.
The fintech and payment processing space should benefit, too. Their business models rely on speed and technology. Names like beaten-down and recent BAD BEAT Investing pick PayPal (PYPL), as well as Block (XYZ), already use AI to analyze millions of transactions to prevent fraud and optimize payment routing. Companies like SoFi (SOFI), Upstart (UPST), and Inter & Co (INTR) also rely on machine learning models to assess credit risk more accurately or match customers to the right products at the right rates while saving on labor costs.
Daniel Jones: As a general framework, I would say that the companies that will benefit the most from the rise of AI will be those that either utilize it to compress costs or those that have large amounts of complex and proprietary data that they can apply it to in order to boost revenue. Examples would be payment processors such as PayPal (PYPL), Visa (V), and Mastercard (MA).
The management team at PayPal specifically mentioned in their latest earnings call that they are using AI to leverage their cost base so that they can redirect spending to innovation. It and other payment processors are also using AI to detect fraud. Visa, for example, has embedded AI into its entire payment authorization and fraud detection operations. These AI models analyze data and assign a risk score to determine whether a transaction should be approved, challenged, or ultimately declined.
PayPal is already moving quickly into AI. In January, the company announced that it was acquiring Cymbio, which operates as a multichannel orchestration platform that helps brands sell across agentic surfaces. The company is also providing commerce services and checkout options for merchants on major AI platforms like Microsoft (MSFT) Copilot and Perplexity. And soon, it will be allowing the same through OpenAI’s (OPENAI) ChatGPT and Google’s (GOOG) (GOOGL) Gemini.
You also have other companies such as SoFi Technologies (SOFI) and Lemonade (LMND). These companies have access to complex data sets that are proprietary in nature. When you apply for a loan or other financial product, they benefit from AI in that they can use it to achieve better underwriting results. In fact, SoFi has seen loan originations explode over the last couple of years now, with management commenting that AI has helped them achieve better underwriting results.