20 Fintech Stocks Riding the AI Wave Higher

14. StoneCo Ltd. (NASDAQ:STNE)

Number of Hedge Fund Holders: 35

StoneCo Ltd. (NASDAQ:STNE) is a prominent fintech company operating in Brazil, providing digital payment and software solutions to merchants across multiple channels, including in-store, online, and mobile. The company’s strong focus on small and medium-sized businesses (SMBs) positions it as a leader in enabling digital commerce in Brazil, using its proprietary Stone Hubs for localized services. StoneCo Ltd. (NASDAQ:STNE) also offers integrated solutions to e-commerce platforms, marketplaces, and software vendors, allowing it to thrive in the expanding fintech market.

StoneCo Ltd. (NASDAQ:STNE) faces some significant headwinds. Morgan Stanley recently downgraded the stock from “Equal-weight” to “Underweight,” citing concerns over slower growth and price compression in Brazil’s saturated payments market. The firm slashed StoneCo Ltd. (NASDAQ:STNE) price target from $16.50 to $7.00, warning of potential downside risks, as earnings projections for the next six years were cut by 45-55%. The primary concern is market saturation, coupled with expected price competition, which could erode operating margins and reduce payment volume growth. Analysts now believe 2024 will mark the peak for growth in the Brazilian payments industry.

However, StoneCo Ltd. (NASDAQ:STNE) Q2 2024 results provided some reasons for optimism. The company reported a 30% year-over-year increase in its client base and a 25% rise in total payment volume (TPV). Additionally, its banking division grew significantly, with a 62% increase in clients and a 65% rise in client deposits. StoneCo’s ongoing investments in sales, coupled with opportunities from Brazil’s PIX NFC and open banking initiatives, suggest it could continue expanding its fintech ecosystem.

While the downgrade raises concerns about long-term profitability, StoneCo Ltd. (NASDAQ:STNE) efforts to integrate AI and enhance its technological offerings position it to capitalize on future growth opportunities within the fintech sector.

Ave Maria World Equity Fund stated the following regarding StoneCo Ltd. (NASDAQ:STNE) in its fourth quarter 2023 investor letter:

“StoneCo Ltd. (NASDAQ:STNE) provides solutions that enable merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. StoneCo has faced near-term operational challenges because of the pandemic and high levels of inflation in Brazil. The company appears to be moving past these challenges and it appears that the successful integration of the newly acquired software business with its payments business will drive substantial shareholder value longer term.”