Affirm vs. Klarna: Which Technology Stock Is a Better Buy in 2026?

As the buy now, pay later market matures, 2026 presents a crossroad for investors choosing between Affirm (NASDAQ:AFRM) and Klarna Group (NYSE:KLAR). Which of these digital payment leaders offers the better opportunity?

Affirm has built its reputation on transparent lending for significant purchases in the United States. Klarna has evolved into a global retail bank with a massive international footprint across 26 countries. Both are vying to replace traditional credit cards by offering flexible payment terms at checkout.

The case for Affirm

Affirm operates a specialized payment network that emphasizes interest-free and simple interest loans for consumer purchases. It has secured a prominent position among tech stocks by partnering with massive retail platforms. The company relies on key commercial partners, such as Amazon and Shopify, to drive transaction volume.

Customer concentration like this adds a layer of risk to the business. If these retail giants were to shift their preferences, Affirm could see a significant drop in activity. However, the company continues to expand its reach with nearly 377,000 active merchants currently using its proprietary underwriting tools.

In FY 2025, revenue reached approximately $3.2 billion, up roughly 38.8% year over year. The company reported net income of close to $52.2 million during this period. The net margin, the percentage of revenue retained as profit, stood at nearly 1.6%.

As of its June 2025 balance sheet, the current ratio was roughly 54.2x. This current ratio measures the company's ability to cover its short-term obligations with short-term assets. The debt-to-equity ratio, comparing total debt to shareholder equity, was approximately 2.6x.

Free cash flow for the fiscal year was nearly $601.7 million. Free cash flow is the cash a company generates after accounting for capital expenditures. Note that stock-based compensation represented roughly 40.5% of operating cash flow, which inflates reported cash generation since SBC is a non-cash expense added back in the cash flow statement.

The case for Klarna

Klarna has successfully transitioned from a simple payment provider into a global digital bank. Its platform currently serves roughly 118 million active consumers and works with nearly 966,000 merchants worldwide. The company has secured partnerships with diverse global brands including Uber, Nike, and Airbnb.

By offering a suite of banking and shopping tools, Klarna aims to be the primary financial app for its users. This strategy focuses on high-frequency, smaller transactions compared to Affirm's focus on larger purchases. The global reach allows Klarna to diversify its revenue across different geographic economies.

In FY 2025, Klarna generated revenue of approximately $3.5 billion, which was an increase of about 31.6% from the prior year. Despite the growth, the company reported a net loss of roughly $294.0 million. This resulted in a net margin of close to -8.4% for the fiscal year.

As of the December 2025 balance sheet, Klarna maintained a debt-to-equity ratio of approximately 0.5x. The current ratio, which compares short-term assets to short-term liabilities, was roughly 1.0x. These figures suggest a different capital structure than its primary American competitor.

Free cash flow was negative for the period, totaling approximately -$1.0 billion. Negative free cash flow indicates the company is spending more on operations and capital investments than it is bringing in from customers. This often happens when a company is prioritizing aggressive international expansion over immediate cash preservation.

Risk profile comparison

Affirm faces significant risks regarding its reliance on a small number of originating bank partners like Celtic Bank. If these partnerships were to end, the company might struggle to fund its loans. Furthermore, Affirm must navigate intense competition from legacy credit card issuers and other fintech firms like PayPal (NASDAQ:PYPL).

Klarna operates in a highly regulated global banking environment which carries risks of legal and compliance changes. The company also faces massive competition from deep-pocketed tech giants like Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL). Both of these competitors have integrated payment solutions that are already installed on billions of mobile devices worldwide.

Valuation comparison

Affirm appears to have a more attractive valuation based on earnings estimates, while Klarna trades at a lower multiple of its total annual sales.

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

Which stock would I buy in 2026?

Affirm and Klarna are in the same business: a short-term financing model known as buy now, pay later (BNPL). Both have built a massive network of merchants and brands and continue to grow. But they operate a little differently, and for investors, they offer different opportunities.

Affirm partners with huge, well-known companies such as Amazon, Apple, Shopify, and Costco. It’s the BNPL of choice for larger purchases and offers the added benefit of not charging late fees. It also allows for longer-term financing, from one month to five years. Recently, it hit an important milestone, achieving generally accepted accounting principles (GAAP) profitability.

Klarna, on the other hand, serves over 100 million customers worldwide. It focuses on customers who make smaller e-commerce purchases, and its transaction volume is much higher than Affirm's. It has been investing in AI to improve its efficiency and reduce costs. But lower consumer spending on discretionary items and delinquent payments have raised concerns for investors.

Both companies have benefits and drawbacks. I don't think Klarna is a bad investment, but I would choose Affirm. Its partnerships with large, well-known companies that are less sensitive to economic downturns give it a better foundation.

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