AI-Powered Lending Lifts Pagaya Technologies Stock (PGY) to Multiyear Highs
Artificial intelligence (AI) is changing industries and creating new business models. In lending, Pagaya Technologies (PGY) stands out by using AI to fuel its platform, driving impressive growth. Its stock has nearly doubled year-to-date and reached profitability earlier than many expected.
Pagaya’s Business Model Explained
Pagaya acts as an intelligent intermediary in the lending market. It doesn’t lend directly to consumers but uses advanced data modeling and AI to help financial institutions make faster, smarter lending decisions than traditional methods allow.
This creates a network effect: Pagaya collaborates with over 31 lending partners, each adding data that improves its AI algorithms. As more partners join, the AI gets smarter, making it difficult for competitors to catch up.
The company’s revenue comes from fees on transactions rather than taking on credit risk. It also diversifies across personal loans, auto financing, and point-of-sale lending to avoid relying on just one market. Pagaya securitizes lending assets with over 132 institutional investors, raising $6 billion through 17 asset-backed securitizations in 2024, becoming the top issuer of personal loan ABS in the US.
In Q1 2025, Pagaya issued $1.4 billion through three transactions, including AAA-rated personal loan ABS and AA-rated auto ABS, with expected net risk retention of 4-5% on personal loan ABS deals.
Turning a Profit
Pagaya’s Q1 2025 results marked its first positive net income, arriving a quarter ahead of schedule. Revenue reached $290 million, up 18% year-over-year. Fee revenue grew 19%, indicating strength in its core business.
The company posted $8 million in net income, a significant improvement from a $21.2 million loss during the same period last year. Management forecasts full-year profits between $10 million and $45 million on revenue of $1.175 billion to $1.3 billion.
Pagaya has transitioned from a cash-burning startup to a profitable market leader. Its AI-driven model offers a competitive edge in a large, growing market. Despite this, the stock trades at just 7.6x forward earnings, well below the sector average of about 22.9x.
Should You Buy, Sell, or Hold Pagaya Technologies?
PGY holds a Strong Buy rating on TipRanks, based on six analysts’ consensus, with a 12-month price target of $19.65—around an 8% gain from current levels. Five analysts are bullish, one is neutral, and none are bearish.
For example, Mark Palmer from Benchmark Co. reaffirmed a Buy rating with a $25 price target, pointing to Pagaya’s operational progress, attractive valuation, and recent GAAP net income profitability. Citizens JMP analyst David Scharf kept a Market Outperform rating, with a $20 price target, highlighting Pagaya’s expanding partnership with Klarna and its efforts to grow in the point-of-sale lending space through ABS funding.
Risks to Keep in Mind
- Regulatory Pressure: Fintech lending faces increased scrutiny, especially regarding AI use and consumer protection. New rules could raise compliance costs or impact Pagaya’s model.
- Economic Sensitivity: Lending is cyclical and tied to consumer sentiment. In 2023, Pagaya took a $229 million impairment charge for underperforming loans but has since tightened underwriting.
- Financial Leverage: The company carries high debt, with a debt-to-equity ratio over 200%. Although it holds about $200 million cash, investors should watch its ability to manage debt while growing.
- Volatility: PGY’s beta is 2.37, indicating higher price swings than the broader market, which may not suit risk-averse investors.
Final Thoughts
Pagaya offers exposure to AI advancements and changes in lending services. Its move to profitability, reasonable valuation, and growth opportunities make it an appealing option. While higher risk is present, so is considerable upside potential. The long-term outlook appears positive.
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