Why Affirm Could Be the Next Big Winner in Rate-Cut Rally

Key Points

• Affirm’s consumer financing model becomes more attractive as interest rates decline, positioning it for growth in a loosening credit environment.
• The company beat Q2 earnings expectations significantly—even before rate cuts began, hinting at future upside.
• Institutional buying and bullish analyst upgrades suggest growing conviction that AFRM is a second-wave rate-cut winner.

While many investors are still chasing the tech rally, especially following the Fed’s rate cut.  Lower interest rates tend to boost spending and lending, especially in artificial intelligence (AI), accelerating the competitive race that is already reshaping the industry.

But there is a less obvious sector may deliver outsized returns: consumer discretionary, especially where lending and installment payments intersect. 

And that's exactly where Affirm Holdings Inc. NASDAQ: AFRM is, offering point-of-sale financing solutions to consumers and merchants.

Affirm's business model is based on installment loans, personal loans, and “buy now, pay later” arrangements. When rates decline, consumer financing becomes more sought after as the cost of capital falls and credit becomes cheaper.

In a time when consumers are still grappling with inflation, affordability matters—and so does Affirm's ability to capture it.

Are Markets Underestimating Affirm’s Potential? 

Affirm has already proven it can succeed in a tough environment. In its most recent quarter, Affirm posted an earnings per share (EPS) of 20 cents, nearly doubling the MarketBeat consensus estimate of 11 cents. This outperformance happened before Fed rate cuts, so investors can now only imagine what numbers could be when the full effect of rate cuts takes effect.

Right now, the analyst consensus price target remains at $80.04 per share, implying a nearly 2% downside from the current price. The earnings forecast also remains cautious, with Q1 2026 EPS consensus estimates calling for a loss of two cents.

However, the Q1 2026 consensus estimate shows Affirm's EPS rebounding to 22 cents. With the FedWatch tool indicating a 94% probability that another rate cut will occur by October 2025, this forecast may even prove to be conservative. If the Fed does lower rates again, it could spur consumer borrowing and boost transaction volumes—and Affirm could easily outperform in this environment.

For investors, this presents a compelling opportunity to get in before Affirm continues to exceed future expectations.

Where Affirm Could Go Next

Some analysts are already seeing a different outcome for Affirm. For example, Dan Dolev at Mizuho has given AFRM stock a price target of $108, while Matthew Coad at Truist sees it at $95. Those targets imply upside of 13% to 28% from current prices, respectively. It would also mark new 52-week highs for the stock.

Breakouts and momentum trends, especially those backed by solid fundamentals, attract big buyers. And Affirm's potential hasn’t gone unnoticed by institutions. 

One such vote of confidence is Durable Capital Partners' increase in its AFRM holdings by 12.3% to a total of $510.9 million in August 2025. Not only was Durable willing to bump up its position to 2.3% of the company, but it was also willing to pay up to do it. AFRM now trades at a price-to-earnings (P/E) ratio of 645x, a massive premium to the 78x average for its peers.

This is a classic sign of high-conviction institutional demand. They aren’t looking for a deal, they’re looking for exposure to future earnings before the broader market catches on and analysts re-rate the stock.

All this makes Affirm a potential second-wave rate-cut winner.