Affirm Holdings Sees Stock Rise After Morgan Stanley Upgrade

Shares of Affirm Holdings (NASDAQ:AFRM) rose 3.4% in pre-market trading on Wednesday after Morgan Stanley upgraded their rating on the stock, signaling renewed optimism around the company’s future prospects.

Morgan Stanley analysts upgraded Affirm to “equal-weight” from its prior “underweight” rating and raised their price target to $37 from $20.

The revision stems from the analysts' belief that Affirm has positioned itself to attract more affluent customers, a shift that could dramatically improve the company's growth trajectory.

Morgan Stanley’s updated view flags three initiatives that Affirm has recently implemented to appeal to higher-income consumers:

1. Integration with Apple Wallet: The integration of Affirm’s services with Apple (NASDAQ:AAPL) Wallet, which became available in mid-September, allows Affirm to tap into Apple Pay’s typically wealthier user base. Analysts project this move could add nearly $2 billion in incremental transaction volumes by FY26, up from earlier estimates of $1.0 to $1.5 billion.

2. 0% Promotional Financing: Affirm has increasingly focused on offering 0% promotional financing in partnership with merchants and manufacturers, which is highly attractive to high-income consumers, often more responsive to promotions on big-ticket purchases. Affirm's direct engagement with manufacturers is a smart move, as they are often more willing to subsidize promotional financing than merchants with slimmer margins.

3. Lower Interest Rates: Affirm is leveraging lower interest rates to offer competitive pricing on its financing products. This flexibility enhances its appeal to affluent customers who prefer low-rate financing options. Combined efforts in distribution, promotion, and pricing position the company for stronger long-term growth.

The upgrade is also supported by reduced regulatory pressure on the Buy Now, Pay Later industry, with the Consumer Financial Protection Bureau taking a more measured approach. This reduced regulatory risk, along with Affirm’s enhanced consumer engagement strategies, has improved the company's outlook.

Despite concerns about its customer base skewing toward lower-income segments, Morgan Stanley’s analysts believe that recent moves mark a meaningful pivot toward a more lucrative demographic. They note that improvements in underwriting practices and customer engagement lay the groundwork for sustainable profitability.

While the stock's recent rally has brought it closer to the new price target of $37, analysts see potential for continued upward estimate revisions as the company gains traction with these new initiatives. They cite upcoming earnings, particularly the next report in November, as a key catalyst for the stock, which could provide further clarity on the success of these strategic shifts.