Scotiabank Sees Affirm Shift from Cyclical Lender to Capital-Light Payments Network

Affirm Holdings (AFRM) stock saw a significant surge of around 6% following an initiation of coverage by Scotiabank, which assigned a Sector Outperform rating and a $95 price target. This marked a notable increase in the company's valuation after years of being seen as a cyclical lender rather than a capital-light payments network.

According to Scotiabank, Affirm is actually behaving like a capital-light payments network, which tends to command higher valuations. The bank highlighted that gross merchandise volume is growing at scale, with more incremental dollars flowing through to operating income, a key indicator of operating leverage.

The Affirm Card plays a significant role in this transformation, as it shifts volume toward higher-frequency, direct consumer spending and reduces reliance on single merchant partners. This also gives Affirm broader spending data, which should improve its underwriting over time.

Scotiabank noted that recent vintage data suggests losses are controlled and adequately reserved for, providing reassurance to investors who have been cautious about credit quality. Additionally, warrant and stock-based compensation drags are fading, making earnings look cleaner going forward.