For decades, big banks were the center of the U.S. financial system, with JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) in the lead. But financial technology, or fintech, companies keep pushing into the same turf with digital-first platforms, aggressive pricing, and simpler ways to borrow, save, and invest. This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » That creates a real investor question: Do you stick with traditional bank stocks for stability or lean into fintech for potentially better returns during the next several years?
The truth is it's not an either-or call for everyone, and the trade-offs are clearer once you separate durability from upside. Traditional banks are still among the safest bets today. The biggest U.S. banks, like JPMorgan Chase and Bank of America, have diversified revenue streams, decades of market leadership, and a solid customer base that will be tough to crack.
In fact, both JPMorgan Chase and Bank of America have price-to-earnings (P/E) ratios of about 15, a common metric for gauging whether a stock's valuation is high or low relative to its earnings. Now, a P/E of 15 is not necessarily cheap relative to the sector's median of 13, but it still looks reasonable for companies of their size and financial strength. Overall, the case for big banks boils down to stability, reasonable valuations, and attractive shareholder returns.
But consistent and reliable stocks don't always translate to explosive growth -- and that's the key argument for fintech. Companies like SoFi Technologies (NASDAQ: SOFI), Block (NYSE: XYZ), and Affirm (NASDAQ: AFRM) are trying to capture segments of the financial services sector that banks have traditionally dominated. The sheer excitement around the underdog story is sometimes enough to drive share prices higher.
In all three cases, their stock prices have doubled or tripled within the past year. The problem, however, is that these are speculative growth stocks, so the upside comes with considerably more risk. In fact, all three companies have lost some of those gains, with only Block trading near its recent 52-week high.
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