The market has gone wild over artificial intelligence (AI)-based data analytics company Palantir Technologies (PLTR 2.59%). Palantir stock is up more than 440% during the past year, and it trades at the almost obscene price-to-earnings (P/E) ratio of 700.
Palantir essentially uses AI to offer a unique and specific set of services, creating real value that its customer base is willing to pay for. It has developed a robust platform that has a long growth runway in a niche market, and there are high barriers to entry, which is why Palantir continues to excite investors despite its lofty valuation.
It's debatable whether it makes sense to invest in Palantir right now, but if you could find another up-and-coming stock that uses AI to create proprietary technology, is demonstrating rapid growth, and has a huge opportunity, but is still dirt cheap, it may make a lot more sense to invest in it instead. Could Pagaya Technologies (PGY -2.24%) be that stock?
The AI lending solution
Pagaya is an AI-powered lending platform that uses numerous data points to assess consumer credit and generate higher approval rates from lenders. It's a double-sided model that connects lenders and funding sources, and it bundles its loans into asset-backed securities (ABS) that it sells to its institutional funders.
Pagaya already has an impressive list of lending partners, including names like Visa, SoFi Technologies, and U.S. Bancorp. It recently concluded its first buy now, pay later deal with Klarna, through a new product it calls POSH (point-of-sale (POS) holdings). It integrates with POS systems to approve more purchases on the spot and targets a lower credit rating cohort with scores in the 600 range.
Pagaya relies on its AI model to evaluate these shoppers with more criteria than the standard credit score, resulting in the ability to approve more loans and purchases without increasing risk for the lender. This first POSH deal is for $300 million and has an AAA credit rating, and it includes 20 different investors.
Image source: Getty Images.
Pagaya has already generated $2.8 billion in ABS deals in 2025, and it has raised $1 billion in funding for the POSH product. Management sees buy now, pay later, which accounted for an estimated 8% of holiday shopping last year, according to Adobe, as a large potential part of its business.
Strong performance in a tough environment
Pagaya has delivered strong results since going public in 2022, and it's keeping up the momentum. It's still reporting double-digit percentage revenue increases, and it's also profitable.
The stock was already on its way up this year based on enthusiasm about its business, robust first-quarter results, and the deal with Klarna. It zoomed even higher last week after it announced preliminary second-quarter results that surpassed expectations, and it's now up 262% this year (as of July 23).
In the quarter, revenue increased to $326 million, above the high end of company forecasts of $310 million, and network volume was $2.6 billion, above the $2.5 billion at the high end of company projections. Net income was expected to be $0 to $10 million and came in at $17 million.
Opportunity or value trap?
At the current price, Pagaya stock trades at a forward, one-year price-to-earnings (P/E) ratio of 11.2 and a price-to-sales ratio of 2.4. That's dirt cheap for a growth stock with tons of opportunity.
It could be a bargain, but investors should be cautious about why the market is pricing it so low. For one thing, there's risk. Pagaya is still young and becoming profitable. Although it works with established and stable partners, the nature of some of its ABS loans that target lower-quality borrowers could also be risky.
Could Pagaya end up being the next Palantir? It could. Palantir's addressable market is data analytics, which had an addressable market of $70 billion last year, according to Grand View Research. Pagaya's addressable market is all kinds of loans, and it puts its addressable market for personal, auto, and POS loans at more than $800 billion. The company says it, "aspires to be the go-to lending technology partner for the consumer finance ecosystem," which is huge.
Pagaya isn't a stock for the risk-averse investor, but if you have an appetite for risk, Pagaya could really take off and present incredible growth opportunities.
