January 25, 2025
Cathie Wood's ARK Invest offers several popular exchange-traded funds (ETFs), and they tend to be rather concentrated, with all of them holding three dozen or fewer stocks. And one stock that Wood seems to have a lot of faith in is SoFi Technologies (NASDAQ: SOFI) . The banking innovator is the sixth-largest holding in the ARK Fintech Innovation ETF (NYSEMKT: ARKF) , making up 5% of the fund's total assets.
You'll also find about $95 million worth of SoFi stock in the flagship ARK Innovation ETF (NYSEMKT: ARKK) , and it's also worth noting that the SoFi app is the exclusive distribution partner for the ARK Venture Fund (NASDAQMUTFUND: ARKVX) , which allows investors to get exposure to companies like SpaceX and OpenAI before their initial public offering.
To say SoFi's performance has been strong recently would be an understatement. The stock has soared by more than 140% over the past six months and just hit a new 52-week high. But here's why I'm not planning to cash in anytime soon.
One of the most encouraging developments recently is a surge in demand for SoFi's personal loans. It started with a $350 million investment from PGIM Fixed Income in mid-2024, but it was just announced that PGIM closed another $525 million personal loan securitization agreement with SoFi. PGIM, which manages about $860 billion in assets, called SoFi's personal loans an "attractive investment opportunity."
This is a big deal, since SoFi doesn't necessarily want to hold billions of dollars of personal loans on its balance sheet (about $17 billion was on the balance sheet at the end of the third quarter). Originating and securitizing loans is a much more appealing business from a risk/reward standpoint, and SoFi is also rapidly expanding its capabilities as a third-party loan origination platform, which should generate a growing stream of capital-light fee income.
In addition, SoFi could be a major beneficiary as interest rates come down, as well as from political tailwinds. While the pace of Federal Reserve rate cuts is likely to be slower than initially expected, the most likely direction for interest rates over the next few years is still lower. This could help SoFi with lower deposit costs and increased demand for loans (both from customers and from asset managers).
Plus, the Trump administration clearly favors looser regulations on banks, as well as lower corporate taxes, both of which could certainly benefit SoFi.
We'll get a fresh look at SoFi's latest results when it reports its 2024 year-end earnings on Monday, Jan. 27. But in the third quarter, SoFi's membership base grew by 756,000, its highest one-quarter new member additions ever .
It continues to grow impressively on both sides of its business -- lending and financial services. Overall, revenue grew by 30% year over year, and SoFi produced $214 million in net income compared with a $301 million net loss a year prior.
Not only that, but SoFi's more recent loans are performing better than the older vintages, and its banking platform continues to attract customer deposits at an impressive pace.
SoFi stock certainly looks more expensive than it did six months ago, but the move is well deserved. Not only is it continuing to grow and become more profitable, but its core personal loan business is also starting to get serious interest from the asset management industry.
In a nutshell, SoFi is doing exactly what I wanted it to do when I first bought the stock, and I have no intention of selling anytime soon.
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