The global artificial intelligence (AI) market is said to be worth around $62 billion in 2020 but could also grow 40% yearly through 2028. If you do not yet own AI stocks in your long-term portfolio, it may be time to start thinking about it.
The recent sell-off within the market of high-growth and tech companies has made for a great buying opportunity for patient and bold investors. Here are the two of the leading AI stocks that remain attractively priced today and that are constructing moats around their algorithms.
1. Upstart Holdings
Your FICO credit score is the main focal point of a person’s financial identity today. It usually determines whether you can get approved for a loan or get funding to purchase a car. The FICO score has been around for a long time and its criteria for scoring depends on some old-school ideas about your creditworthiness. Upstart Holdings is starting to disrupt the FICO score by incorporating their own algorithms to make lending decisions while using consumer data and not the individual’s credit score.
The company also claims that its tech will come from loans at the same approval rate while lowering defaults by 75%. Upstart’s main revenue comes from fees that it receives for loan referrals to its network of lending partners. It is currently partnered with about 31 lenders, which is up from 10 just a year ago, and a few have even completely abandoned FICO scores, depending solely on Upstart’s technology.
Upstart’s revenue has grown 250% year over year in Q3 of 2021 to $228 million, and Upstart is already profitable, producing $29.1 million in net income stream during the quarter. The stock value has come down over 70% during this tech sell-off, which can be a great time to buy as Upstart starts to expand into new loan categories.
2. Affirm Holdings
With the buy now, pay later (BNPL) loans, consumers are able to purchase or borrow an item and pay it back in payments, often interest-free. BNPL has is starting to be increasingly popular, threatening to take away from credit card companies’ stronghold on consumer’s spending. Affirm Holdings is among the top BNPL players, using algorithms to help make lending choices at the point of sale when a customer makes a purchase, analyzing how much should be approved a user for.
Affirm is also positioning itself well within the e-commerce space, partnering with large online retailers including Shopify, Amazon, Target, Walmart and many other leading brands that users are able to shop via Affirm’s smartphone app. The BNPL industry has gotten a lot of attention after a report came out that revealed that one-third of U.S. borrowers were starting to fall behind on their BNPL payments. But looking at the company’s earnings filing for the quarter ended September 30, 2021, only about 5% of the company’s loan balances were behind, which indicates that Affirm’s algorithms are making better lending choices than its competitors.
The stock had fallen close to its lowest price since going public this past year, before Affirm announced its partnership with Amazon. On top of that, Affirm should release its debit card in 2022, which will give customers the ability to use Affirm payment option at physical stores, and then the will be able to split their purchases directly into BNPL installments.