Investing.com -- Shares of Affirm Holdings (NASDAQ:AFRM) rose 3.4% in pre-market trading on Wednesday after Morgan Stanley upgraded their rating on the stock, signaling renewed optimism around the company’s future prospects.
Morgan Stanley analysts upgraded Affirm to “equal-weight” from its prior “underweight” rating and raised their price target to $37 from $20.
The revision stems from the analysts' belief that Affirm has positioned itself to attract more affluent customers, a shift that could dramatically improve the company's growth trajectory.
Morgan Stanley’s updated view flags three initiatives that Affirm has recently implemented to appeal to higher-income consumers.
First, the integration of Affirm’s services with Apple (NASDAQ:AAPL) Wallet, which became available in mid-September, allows Affirm to tap into Apple Pay’s typically wealthier user base.
The analysts project that this move alone could add nearly $2 billion in incremental transaction volumes by FY26, up from earlier estimates of $1.0 to $1.5 billion.
This partnership is particularly vital because Apple Pay users tend to be younger and higher-income, aligning well with Affirm’s goals of expanding its reach beyond its traditional customer base.
Second, Affirm has increasingly focused on offering 0% promotional financing in partnership with merchants and manufacturers.
These types of offers are highly attractive to high-income consumers, who are often more responsive to promotions tied to big-ticket purchases.
The analysts noted that Affirm's direct engagement with manufacturers is a smart move, as manufacturers are often more willing to subsidize promotional financing than merchants with slimmer margins.
By expanding these promotions, Affirm is expected to see higher usage rates among wealthier consumers, a key demographic that has been somewhat elusive for the company in the past.
Third, Affirm is leveraging lower interest rates to offer more competitive pricing on its financing products. With the ability to reduce borrowing costs, Affirm can offer a wider range of promotional interest rates beyond 0%, such as 1.99% or 4.99%.
This flexibility enhances its appeal to more affluent customers who are accustomed to low-rate financing options. According to Morgan Stanley, these combined efforts in distribution, promotion, and pricing create a powerful toolset for Affirm to capture and retain higher-spend demographics, positioning the company for stronger long-term growth.
The upgrade is also supported by the easing regulatory pressure on the Buy Now, Pay Later industry. The Consumer Financial Protection Bureau has taken a more measured approach to the sector, noting that BNPL providers, including Affirm, are complying with new regulations regarding consumer protection.
This reduced regulatory risk, combined with Affirm’s enhanced consumer engagement strategies, has improved the company's outlook in the eyes of Morgan Stanley analysts.
While Affirm has historically faced concerns about its customer base skewing towards lower-income, lower-credit-quality segments, Morgan Stanley’s analysts believe that the company’s recent moves mark a meaningful pivot toward a more lucrative customer demographic.
They also note that Affirm’s efforts to improve its underwriting practices and customer engagement are laying the groundwork for sustainable, long-term profitability.
Morgan Stanley’s analysts acknowledge that while the stock’s recent rally has brought it closer to their new price target of $37, they see potential for continued upward estimate revisions as the company gains further traction with its new initiatives.
They cite upcoming earnings, particularly the next report in November, as the next key catalyst for the stock, which could provide further clarity on the success of these strategic shifts.