While artificial intelligence stocks like Nvidia and Palantir may be the darlings of 2025's stock market headlines, another under-the-radar stock deserves similar attention. Even better, unlike Nvidia and Palantir, this stock still looks undervalued. Interestingly, this isn't even a tech stock. It's a financial company. I'm referring to the online stock brokerage Interactive Brokers (IBKR +1.21%).
With its soaring revenue and profits, as well as its impressive customer account growth, this company's momentum looks poised to persist. Indeed, given the company's history of execution, its recent uptick in customer accounts, and its competitive advantage as a low-cost operator, it's highly likely that this stock will soar over the next decade.
Image source: Getty Images.
Stellar second-quarter results
With shares of Interactive Brokers rising about 35% year to date going into the company's second-quarter earnings report last week, it's safe to say that expectations were elevated. Fortunately, the pureplay brokerage business, which prides itself on automation and low costs, delivered. Total revenue, driven primarily by a 27% year-over-year increase in commissions, rose more than 20% year over year. Earnings per share increased more than 24% year over year.
Strong fundamentals like this importantly help support the growth stock's boosted valuation multiple. Shares now trade at a price-to-earnings multiple of 33, up from about 25 at the start of the year and from 20 at the lows during April's market sell-off.
Momentum where it matters most
To understand the bull case for Interactive Brokers, however, investors have to look beyond the company's reported revenue and earnings-per-share growth. Capturing its momentum is the online brokerage's strong customer metrics.
Starting with the lifeblood of Interactive Brokers' business, its customer accounts increased an impressive 32% year over year during the quarter, rising to 3.87 million.
The company's investments in automation are helping.
"Our application processing is highly automated and continually becoming even more so, explained Interactive Brokers Director of Investor Relations Nancy Stuebe during the company's second-quarter earnings call, "allowing us to handle surges in new accounts efficiently, without adding significantly to our headcount or cost base."
The company has added 528,000 customers in 2025 alone.
Additionally, increased customer activity is helping. Total daily average revenue trades (DARTs) during the quarter rose 49% year over year to 3.55 million.
Lately, activity has been aided by a volatile stock market. The period included April's sell-off and the subsequent V-shaped recovery in the stock market.
"Volatility and uncertainty often spark increased market activity," Stuebe explained during the earnings call. "Combined with our strong net new account growth, this led to our client trading volumes expanding for stocks, options, and futures."
Though it's worth noting that robust customer momentum isn't new for Interactive Brokers. The company consistently grows its customer accounts at strong, double-digit growth rates, regardless of the quarter's volatility. While recent customer account growth rates and DART growth are unlikely to be sustainable, investors should at least expect double-digit growth rates in the teens or better in both key customer metrics for the next few years and beyond.
NASDAQ: IBKR
Key Data Points
The bull case
Overall, Interactive Broker's robust customer momentum, when combined with the company's highly automated operation, is a recipe for strong earnings growth for years to come.
Of course, there are risks. If competing brokerages can replicate Interactive Brokers' automation, for instance, they could reverse their market share losses and ultimately slow Interactive Brokers' growth. Further, more than half of the company's revenue is currently generated from net interest income. If the Federal Reserve lowers interest rates, this line item will likely be hurt.
Even with these risks, Interactive Brokers' strong customer momentum should easily offset declines in net interest income over the long haul. Furthermore, competition will likely struggle to replicate Interactive Brokers' secret recipe for automation -- a proprietary process the company has perfected over decades. While there's no guarantee that the stock will beat the market over the long haul, it seems likely. Given the stock's historical volatility, it will likely be a bumpy ride, but probably a worthwhile one.
