We recently compiled a list of the 10 Best Financial Services Stocks To Buy According to Analysts. In this article, we are going to take a look at where Mastercard Incorporated (NYSE:MA) stands against the other best financial services stocks to buy according to analysts.

According to the Financial Industry Index, which increased by more than 30% by mid-December and beat the overall market by about 5 percentage points, 2024 was a spectacular year for the financial industry. This growth followed concerns about mid-sized bank collapses in early 2024, which proved to be isolated incidents rather than an issue impacting the industry as a whole.

Meanwhile, as we have mentioned in our article, 10 Best Financial Stocks To Buy According to Hedge Funds, the market for financial services has expanded significantly in the last several years and is further expected to grow at a compound annual growth rate (CAGR) of 7.7% in the next few years.

Amidst the growth, as per EY’s report, the financial services industry is also undergoing a change because of artificial intelligence, particularly generative AI, which boosts productivity, modifications, and innovation. AI is helping banks provide individual solutions and improve risk control while accelerating processes like fraud detection, loan processing, and customer support. Large financial institutions are using AI to lower expenses, improve compliance, and create new products like automated tax compliance and predictive analytics. Nonetheless, issues like data privacy, rules of conduct, and AI’s “black box” decision-making continue to exist. Notwithstanding these obstacles, artificial intelligence is revolutionizing financial services by spreading beyond banking to include wealth management, insurance, and payments.

According to IBM’s report 2024, Generative AI is revolutionizing financial services by improving customer satisfaction and propelling advancements in risk assessment as well as personalized financial solutions. Secondly, the use of hybrid clouds is growing as companies seek to boost compliance, scalability, and efficiency. Thirdly, cybersecurity is still crucial, with growing investment in fraud detection systems as AI-driven threats emerge. Businesses are putting a greater spotlight on sustainability by giving green financial products and ESG initiatives top priority. By utilizing AI technologies such as Watsonx Assistant, customer experience management (CXM) increases customer pleasure and loyalty. Moreover, the use of open banking is growing as a result of APIs’ ability to simplify procedures and provide customers with more control over their data. Secure online transactions are being reinforced by the resurgence of digital currencies and blockchain.

Looking ahead, Deloitte’s 2025 investment management outlook predicts that AI, digital transformation, and changing investor demands will quickly impact the investment management industry in 2025. Low-cost funds are dominant, with active management flourishing within ETFs. Sustainability-focused investments, hybrid funds, and private financing are important growth areas. AI has exceeded expectations and is transforming operations and sales, but companies that are not embracing it quickly could fall behind. Regulatory changes, cybersecurity, and the combination of traditional and alternative assets are examples of growing risks. While some companies may find it difficult to survive in a high-risk, high-reward environment, bold companies that use AI and diversify their products may benefit from these changes. The key to success is scaling innovation and satisfying the need for sustainable, affordable solutions.

On the other hand, Deloitte’s 2025 banking and capital markets outlook report stated that banks can strengthen their basis for sustainable growth with creativity and discipline as the banking industry adjusts to a low-growth, lower-rate environment. It is anticipated that GDP growth will be 1.5% in 2025, and inflation will be approaching the 2% target, presenting a low-growth, lower-rate scenario for US banks. With savings exhausted by March 2024 and debt reaching $17.7 trillion, consumer spending may decline. Net interest margins may be compressed as a result of declining interest rates, with the federal funds rate falling to 350-375 basis points. Noninterest income presents opportunities, but growing salaries and technology expenditures drive up costs. Credit quality may slightly improve but is expected to stabilize. As geopolitical and regulatory uncertainty further complicate the picture, Deloitte observes that weak business investment and higher deposit costs will test banks’ adaptability.

Methodology

We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial services stocks. From the resultant dataset, we chose 10 stocks with a projected upside potential of over 7% based on analyst price targets, as of January 9. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

Mastercard Incorporated (NYSE:MA)

Upside Potential as of January 9: 9.83%

As the second-largest payment processor in the world, Mastercard Incorporated (NYSE:MA), one of the Best Financial Stocks, handled almost $9 trillion in transactions in 2023. The company thrives at digital and cross-border payments, maintains strong operating margins, and gains from more travel. The company operates in more than 200 countries and handles transactions in more than 150 currencies.

Despite market challenges and inflation, the company continues to show robust growth and profitability. Mastercard Incorporated (NYSE:MA) is poised for future growth because of its strategic and innovative investments, despite the risks of competition and regulatory scrutiny.

The sustainability of Mastercard Incorporated (NYSE:MA) is seen in its most recent financial outcomes. Revenue increased 13% year over year in Q3 of 2024 due to strong consumer spending and improved global macroeconomic conditions. Travel-related and overall spending is still growing, as seen by the 10% YoY growth in gross dollar volume and the 17% YoY increase in cross-border volumes. Operating margins rose to 59.3%, which led to a 16% increase in EPS, while revenue from value-added services grew by 18%, surpassing overall growth. The company’s $12 billion authorization for a new share buyback and its $12 billion yearly free cash flow prove that it continues to deliver outstanding returns to shareholders. Cash flow from operations grew by 58.86% year over year.

Trevor Williams, a Jefferies analyst, maintained his Buy recommendation on Mastercard Incorporated (NYSE:MA) shares and increased the price objective from $590 to $610. Investors are informed by the analyst that, based on the firm’s assessment of the underlying drivers in FY25, no more pricing would be required in 2025 for the company to achieve 12% growth in organic transaction processing fees, and just 50 points of additional pricing would be required to achieve 13% growth.

The 24 analysts with 12-month price targets for  Mastercard Incorporated (NYSE:MA) stock have an average target of $567.17, with a low estimate of $482 and a high estimate of $654. The current stock price of $516.40 is expected to rise 9.83%, according to the average objective.

Ken Griffin’s Citadel Investment Group was the largest stakeholder in the firm among the funds in Insider Monkey’s database. It owns 4.12 million shares worth $2.03 billion as of Q3. Qualivian Investment Partners stated the following regarding Mastercard Incorporated (NYSE:MA) in its Q3 2024 investor letter:

“Mastercard Incorporated (NYSE:MA): Q2 2024 revenues and EPS beat consensus expectations, growing 11% (+13% on a constant currency, CC, basis) and 24% (+27% on a CC basis) respectively. Overall payments volume increased 9%, with highly profitable cross-border volumes growing 17%. Management qualified their expectations for a solid FY2024 anchored around continued stable consumer spending, while noting there is uncertainty regarding the overall macroeconomic backdrop heading into the back half of 2024 and 2025. In the event of a weakening consumer, management noted they would adjust investment priorities as well as the company’s cost structure as appropriate if trends softened further. We continue to expect that over the longer term, MA will continue to drive and benefit from the digitization of payments globally.”

Overall,  MA ranks 7th on our list of the best financial services stocks to buy according to analysts. While we acknowledge the potential for MA to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.