Two Fintech Plays Down Sharply: Why They Could Bounce Back Big

The post-pandemic era has been brutal for fintech stocks. Market enthusiasm about digital transformation in financial services has cooled considerably, and many investors have taken heavy losses. Yet for those willing to look deeper, opportunity is knocking—especially as central banks worldwide pivot toward rate cuts. As technology continues advancing and digital payments gain adoption across emerging markets, astute investors might find compelling entry points in deeply discounted fintech names.

Payment Processing Pioneer Trading at Fire-Sale Valuation

StoneCo (NASDAQ: STNE) represents an intriguing case study in how initial euphoria can give way to harsh realities. The Brazil-based payments and financial services provider surged to $94.09 per share in early 2021, riding high on pandemic-era optimism about digital transformation and strong demand for payment solutions among small and medium enterprises.

The story turned ugly when macroeconomic headwinds hit Brazil hard. StoneCo’s credit unit faced severe challenges after the company relied on flawed government datasets to evaluate borrower creditworthiness, resulting in substantial losses. The credit operations were temporarily halted. Fast forward to today, and the stock has crashed approximately 88% from those 2021 peaks, now trading around $11.

But here’s where it gets interesting. Despite the volatility and past stumbles, recent performance metrics suggest the company has turned a corner. In the second quarter, total payment volume climbed 25% year-over-year, while the company also managed to increase transaction fees. Most impressively, non-GAAP adjusted net income surged 54% year-over-year—a sign that operational efficiency is improving meaningfully.

From a valuation standpoint, StoneCo looks remarkably cheap. The company trades at approximately 9.5 times forward earnings and less than 1.5 times sales. Brazil’s payment ecosystem remains far less digitized than North America’s. E-commerce penetration is still in early innings. For investors comfortable with emerging market volatility, the upside potential—if the company successfully capitalizes on Brazil’s digital payments expansion—could be substantial.

AI-Powered Lending Platform Positioned for Rate-Driven Recovery

Upstart Holdings (NASDAQ: UPST) tells a different but equally dramatic story. Those who followed 2021’s market rally remember Upstart’s spectacular debut. Going public in December 2020, the fintech stock rocketed higher on triple-digit percentage returns and strong earnings momentum.

Then came the rate-hiking cycle. Upstart’s core business—originating consumer loans through a proprietary artificial intelligence platform—proved extremely vulnerable to rising interest rates. Higher borrowing costs crushed demand for consumer credit, and the stock collapsed more than 90% from its highs.

The company’s value proposition remains compelling: Upstart’s AI algorithm screens loan applicants more effectively than traditional FICO scores alone, expanding the addressable borrower pool and enabling more competitive pricing. Unlike legacy lenders, Upstart is technology-first, giving it structural advantages when conditions normalize.

Recent monetary policy developments could prove transformative. The Federal Reserve cut the benchmark funds rate by 50 basis points and projects another 50 basis points in cuts before year-end. Lower rates directly reawaken consumer demand for loans. On the management front, CFO Sanjay Datta explicitly noted that falling interest rates are “unambiguously good for the business,” since they encourage borrowing and make approvals easier.

Upstart has also diversified beyond personal loans. The company now provides home equity lines of credit across nearly half the United States, positioning itself as an equity home lenders platform rather than a single-product player. This diversification into the home lending space reduces reliance on personal loan originations and opens enormous addressable markets. The company has also trimmed costs aggressively through workforce optimization, meaning profitability should expand significantly as lending demand recovers.

While recent quarters have felt stagnant, the underlying technology remains sound and the macro setup increasingly favorable. Trading down more than 90% from peak valuations, Upstart has considerable upside if it executes on the rate-cut tailwind.

The Opportunity Ahead

Both StoneCo and Upstart represent classic bounce-back candidates: quality businesses punished by temporary conditions. StoneCo benefits from long-term digital payment adoption in Brazil, while Upstart stands to gain from Fed rate cuts and its expanded equity home lenders product suite. Risk-tolerant investors positioning for the next cycle might find these deeply discounted fintech names worthy of serious consideration.