Better Fintech Stock: SoFi Technologies vs. Nu Holdings

Key Points

• Nu Holdings and SoFi Technologies have seen significant stock gains over the past year and a half.

• Both companies operate digital-first fintech platforms that provide a range of financial services within a single app.

• SoFi focuses on U.S.-based customers while Nu targets the underbanked population in Latin America.

• 10 stocks we like better than SoFi Technologies ›

In recent years, Nu Holdings (NYSE: NU) and SoFi Technologies (NASDAQ: SOFI) have emerged as standout performers in the stock market, with the stocks respectively gaining 84% and 156% since the beginning of 2024.

Both companies have demonstrated exceptional growth, attracting new customers and capturing market share. If you're a growth investor considering your options, Nu and SoFi are both intriguing. Let's explore their similarities and differences to see which one might be right for you today.

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SoFi and Nu have this in common

SoFi Technologies and Nu Holdings both own and operate rapidly growing fintech platforms. Their businesses center on digital-first ecosystems that integrate multiple financial services, such as banking, lending, and payments, into a single app. This integrated approach enables them to deepen customer engagement, cross-sell products, and reduce customer acquisition costs over time.

Both emphasize low fees, transparency, and accessibility, often appealing to overlooked populations. SoFi initially focused on millennials burdened by student loan debt in the U.S. Nu's focus is on the tens of millions of Latin Americans who have been historically unbanked or underbanked.

Both fintechs face a similar challenge: scaling profitably while competing with traditional banks and other fintech companies. Their growth potential is massive, tied to customer expansion and product depth. However, their valuations hinge on proving sustainable earnings in a challenging macroeconomic environment.

SoFi is a fast-growing U.S.-based fintech

SoFi has evolved into a one-stop financial hub, offering student loan refinancing, personal loans, mortgages, credit cards, checking and savings accounts, investment services (including stocks, ETFs, and cryptocurrencies), and insurance.

The company also leverages a technology platform that enables clients (non-bank fintech companies) to create, launch, and run financial products, including processing, digital, and core banking platforms, and payment functionality.

Student and personal lending remain core revenue drivers for SoFi. In the first half of this year, the company originated $12.5 billion in personal loans and another $2.1 billion in student loans. This helped drive $483.6 million in contribution profit through the first six months, which is up 19% from the same period last year.

Its 2022 acquisition of Golden Pacific Bancorp was a defining moment, giving SoFi direct access to low-cost deposits, lowering its cost to fund loans compared to warehouse and securitization financing, allowing it to scale lending more profitably. Since the acquisition, SoFi's deposit base has grown from zero to over $29.5 billion.

It also enabled the company to hold more loans on its books and generate net interest income in the process. Through the first six months of this year, SoFi's net interest income was over $1 billion.

Nu Holdings' low-cost bank model is spreading across Latin America

Nu Holdings operates the largest digital bank in Brazil, and it's rapidly expanding across Latin America. With over 107 million customers in Brazil, Nu has captured 60% of the country's adult population as it aims to democratize finance and bring banking services to those traditionally underbanked. It offers credit cards, digital accounts, and loans to millions previously excluded from the banking system.

Nu is now setting its sights on expanding into other key markets in Latin America, like Mexico and Colombia. In April, Nu Mexico received approval from the Mexican National Banking and Securities Commission to transition into a full-service bank. This milestone opens the banking world to millions of unbanked and underbanked people in Mexico. In Mexico, Nu now serves 12 million customers.

Over time, Nu has expanded its offerings to include personal loans, investments, and insurance. It is also expanding its services beyond financial products, aiming to provide more options to its large customer base. The primary challenge is managing credit risk in volatile economies while achieving profitable growth at scale.

Which stock is a better buy today?

SoFi and Nu have displayed stellar growth and present compelling long-term opportunities. They also present risks. For example, credit quality could deteriorate, which could have a significant impact on their businesses. Nu also faces regulatory and operational risks operating in a historically volatile economic region in Latin America.

SoFi faces the same risks if credit deteriorates in the U.S. However, its growing tech platform is a differentiator that could propel it higher down the road if it can leverage this and attract more fintech companies to use it.

SoFi is priced at 47.5 times next year's projected earnings, while Nu is priced at 17.4 times projected earnings. Growth investors looking for upside may find either stock compelling, and which one you go with depends on your risk tolerance and where you think the larger opportunity is. Given its cheaper valuation on a forward basis, I would give Nu an edge today.

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Courtney Carlsen has positions in Nu Holdings and SoFi Technologies. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.