Upstart vs. Pagaya Technologies: Which Financial Stock Is a Better Buy in 2026?

As lending shifts toward machine learning, Upstart (NASDAQ:UPST) and Pagaya Technologies (NASDAQ:PGY) are racing to replace traditional credit scores. Both companies offer unique paths for investors seeking exposure to the next generation of credit.

These companies are frequently compared because they both use sophisticated algorithms to help lenders assess borrower risk more accurately than a standard FICO score. While they operate in the same general ecosystem, their business models and financial health vary significantly, making a side-by-side comparison essential for any long-term investor.

The case for Upstart

Upstart operates an AI-based marketplace that connects consumers with more than 100 partners among financial services for various loan products. Its expansion includes home equity lines of credit and small-dollar relief loans, while its top three lending partners accounted for nearly 61% of total revenue in 2025. Customer concentration like this adds a layer of risk to the business, as the platform's success relies on maintaining relationships with a limited number of high-volume institutions.

In FY 2025, revenue reached approximately $1.1 billion, up roughly 58.9% from the prior year. This performance led to a net income of close to $53.6 million, indicating that the company is successfully scaling while improving its bottom line. The company's rapid growth highlights the increasing adoption of AI tools by smaller financial institutions looking to compete effectively with major national banks.

As of the December 2025 balance sheet, the debt-to-equity ratio was roughly 2.3x, calculated by dividing total debt by shareholders’ equity. The current ratio stood at approximately 3.0x, calculated by dividing current assets by current liabilities to assess the ability to pay short-term debts. For FY 2025, free cash flow was nearly negative $166.1 million, representing the cash from operations remaining after capital expenditures.

The case for Pagaya Technologies

Pagaya Technologies provides the AI infrastructure that allows its financial partners to evaluate and originate loans across various markets like auto and real estate. The company depends on a small number of fintech partners for a majority of its revenue. Customer concentration like this adds a layer of risk to the business, yet this technology-first strategy allows the firm to embed its software into existing workflows, making it a sticky partner for lenders.

During FY 2025, the company generated revenue of approximately $1.3 billion, which is a nearly 25.6% increase over the previous fiscal year. It achieved a net income of roughly $81.4 million and a net margin of close to 6.5%, which represents the percentage of revenue remaining after all expenses. This profitable result is a major milestone for the business as it transitions from an early investment phase into a more mature operating model.

Based on its December 2025 balance sheet, the debt-to-equity ratio is approximately 1.9x, calculated as total debt divided by shareholders’ equity. The current ratio is roughly 5.6x, indicating how many times current assets can cover short-term liabilities. In FY 2025, free cash flow was nearly $224.7 million, calculated as cash from operations minus capital expenditures, providing the company with significant financial flexibility.

Risk profile comparison

Upstart faces risks from macroeconomic factors, such as high interest rates, that reduce loan demand and limit the availability of investor funding. The business also depends on its AI models performing accurately across cycles, as errors could lead to sub-optimal pricing and a loss of partner trust. Furthermore, the company must compete for market share against established financial technology companies such as Fair Isaac.

Pagaya Technologies is sensitive to shifts in the real estate market and the availability of cost-effective capital within the complex securitization markets. Its expansion into property management introduces new regulatory risks and regional economic sensitivities that could impact its network volume. Additionally, the company competes with various fintech firms and traditional financial giants, including SoFi Technologies.

Valuation comparison

Pagaya Technologies appears cheaper because its Forward P/E uses future earnings estimates and its P/S ratio compares market value to sales.

Sector benchmark uses the SPDR XLF sector ETF. Valuation metrics sourced from Financial Modeling Prep (FMP) and may differ from other data providers.

Which stock would I buy in 2026?

Pagaya and Upstart have one thing in common: Both use AI to help evaluate borrowers. But aside from this, there are key differences that can help investors choose one over the other.

Neither company is really a household name, but Upstart may be more recognizable. It also has a first-mover advantage and a reputation as a fintech disruptor. However, when funds are unavailable from banks and credit unions, it can act as more of a lender, carrying more loans on its own balance sheet. That means it faces a greater risk of borrower defaults.

Pagaya also uses AI-driven underwriting, but it limits direct exposure to the loans it facilitates by partnering with institutional investors rather than using its own capital to carry loans. This can make the business more resilient as economic conditions change.

Both companies are expanding into different types of loans, such as auto and mortgage loans, and are growing well. And Pagaya's model doesn't necessarily make it a safer investment. Both companies' stocks are prone to volatility because they remain tied to consumer credit trends and broader economic conditions. But for long-term investors looking for exposure to AI-powered lending, Pagaya may be the more balanced opportunity today.

Pamela Kock has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool recommends Pagaya Technologies. The Motley Fool has a disclosure policy.