Amidst the recent Federal Reserve’s dramatic 50 basis point rate cut, the market found itself in a tailspin, teetering between elation and unease. While the S&P 500 Index ($SPX) and Dow Jones Industrial Average Index ($DOWI) eventually ended the day in the red, concerns loom over the broader implications of such a significant rate cut rarely seen outside severe macroeconomic crises like the COVID-19 pandemic in 2020 and the Global Financial Crisis in 2007-2008.

The Fed’s Bold Move and Powell’s Reassurance

Fed Chairman Jerome Powell attempted to assuage mounting fears by asserting, “I don’t see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn, is elevated.” Pushing back on expectations for more 50-basis point rate cuts, Powell emphasized a cautious approach, signaling that the U.S. central bank is far from panic mode.

Reading between the lines, Powell’s stance hints at the Fed’s confidence in a soft economic landing, once viewed as the ideal Goldilocks scenario. With this overdue rate cut, the Fed seems to be catching up with global economic realities and aligning itself with the policies of other major central banks. Market participants swiftly responded by propelling stocks to new heights, welcoming this newfound momentum.

Forecasts appear promising for SoFi (SOFI), the standout fintech player, after the Fed’s decisive action. Despite a year-to-date loss of over 16%, the stage is set for SoFi to capitalize on this economic shift. Let’s delve into the investment thesis post the Fed’s rate cut.

SoFi’s Strategic Position Post Rate Cuts

Originally a lending platform, SoFi has undergone a radical transformation, diversifying its revenue streams over the years. The Tech Platform and Financial Services segments, which collectively accounted for 38% of its revenues in 2023, surged to 45% in Q2.

Notably, SoFi’s recent growth has been spearheaded by these segments, where revenues expanded by 46% in Q2. In contrast, the Lending business saw a modest 5% revenue increase, as the company deliberately tapered its lending activities in response to high interest rates and looming delinquency concerns. Enter the Fed’s rate cut and easing macro headwinds, potentially signaling a resurgence in SoFi’s core lending business.

Anticipating the impact of rate cuts, SoFi foresees a boon in its home loan lending, home equity loans, and purchase loan businesses. CEO Antony Noto dispelled fears of dwindling annual percentage yields (APYs) amidst falling interest rates, citing the company’s ability to maintain competitive rates due to its origination platform.

Noto underscored, “As rates go down, the value of our loans generally go up, all else equal, and so we can maintain a superior APY.” Remarkably, SoFi projects sustaining net interest margins (NIMs) above 5% in the foreseeable future, painting a rosy picture for its financial health.

SoFi’s Resilient Growth Trajectory

Despite a noticeable slowdown in lending, SoFi remains on a growth trajectory, witnessing a 22% year-over-year revenue uptick in Q2.

The company’s member base has been snowballing, adding a whopping 643,000 members in Q2, culminating in 8.8 million members by the quarter’s end – a far cry from the modest 1.08 million members in Q1 2020. Furthermore, cross-selling opportunities to these members lie at the heart of SoFi’s growth strategy, with nearly 30% of new members embracing additional products within a month of signing up.

Outlook and Analyst Sentiment

Despite Wall Street’s lukewarm stance, with an overall “Hold” rating from 18 analysts, SoFi’s stock carries a mean target price of $8.96, representing a 10.5% upside potential from Wednesday’s close.

Strategically positioned amidst a stable economic backdrop and improving employment scenario in the U.S., SoFi presents an attractive investment opportunity. With room to expand its lending arm and capitalize on a resurgent economy, SoFi is poised for monumental growth. While its forward price-to-earnings (P/E) multiple of 49x may appear inflated, this is primarily due to its recent attainment of GAAP profitability in Q4 2023.

Guiding an EPS range of $0.55-$0.80 for 2026 and projecting a subsequent 20%-25% growth in post-2026 GAAP EPS, SoFi’s stock trades at just over 10x the upper end of its 2026 EPS range, indicating a relatively modest valuation.

All in all, SOFI stock emerges as a lucrative buy amid the Fed’s gradual rate cuts, painting a bright future for the fintech firm’s operations amidst a stabilizing U.S. economy.

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As of the publication date, Mohit Oberoi held a position in: SOFI. All information and data contained in this article are intended for informational purposes only. For further details, refer to the Barchart Disclosure Policy.

The opinions and viewpoints expressed in this article belong solely to the author and do not necessarily reflect those of Nasdaq, Inc.