Why Affirm Jumped 12% Yesterday — Does the Rally Have Legs?

Affirm Holdings (NASDAQ: AFRM | AFRM Price Prediction) is a fast-growing leader in the buy now, pay later (BNPL) sector, offering consumers flexible installment payments for purchases. The company’s stock has been volatile this year, rising 137% from its April lows to close around $73 per share yesterday following an 11.8% jump. This gain followed one of Affirm’s regular fireside chats hosted by CFO Rob O’Hare to address investor questions.

The comments reassured investors about the underlying health of Affirm’s business during a holiday shopping season critical for BNPL providers. Yet there are overarching economic signals that could present challenges for Affirm and other companies in the space. 

U.S. unemployment rose to 4.6% in November — its highest level in four years — while the Federal Reserve just cut its benchmark rate again by 0.25 percentage points. That brings the federal funds rate to 3.5% to 3.75% — its third reduction in 2025, which suggests concern over slowing growth. 

With these indicators pointing to potential economic deterioration, it’s legitimate to question whether the market’s enthusiasm for Affirm’s stock is warranted.

Building On a Strong Foundation

Affirm operates a payment network that allows consumers to pay over time for purchases, partnering with merchants and originating banks. The platform supports a wide range of loan sizes — from $35 to $35,000 — and repayment terms span from weeks to 60 months, including 0% interest options and interest-bearing loans. Unlike many competitors, Affirm doesn’t charge late fees and underwrites each transaction individually using machine learning and proprietary data.

In its recent fiscal first-quarter 2026 earnings report, Affirm delivered strong results, with gross merchandise volume (GMV) growth exceeding expectations. The company has benefited from partnerships, such as a renewed five-year extension with Amazon (NASDAQ:AMZN) through 2031, and expansions like Shopify (NYSE:SHOP) in the UK. The Affirm Card — a debit card with pay-over-time features — has emerged as a fast-growing opportunity, contributing to accelerating GMV and higher profitability due to its interest-bearing mix.

Affirm also gets most of its business from repeat borrowers  — 96% of transactions in recent periods — who exhibit lower default rates. The company has also witnessed a shift toward higher-frequency, lower average order value transactions. That has helped incremental margins remain above 75%, supported by operating leverage and investments in new products.

Affirm’s Competitive Edge

Affirm positions itself as better equipped for downturns compared to peers and traditional credit providers because transaction-level underwriting allows for rapid adjustments when stress signals emerge. Short loan durations — with an average term of 12 months and a weighted average life of about five months — also let it quickly recalibrate its portfolio if trends stray too far in either direction. 

The BNPL stock also builds proprietary data, helping to reduce risk over time as subsequent loans show the probability of delinquency stepping down, though as O’Hare noted, it never gets to zero. Affirm’s no-late-fee model also means consumers aren’t penalized for temporary problems, meaning the company is willing to give up some revenue in exchange for growing its market share.

O’Hare was able to lay to rest concerns over slowing volume growth. Apparently unnamed third-party data providers had suggested Affirm was experiencing weaker volumes recently, but the CFO dismissed them, stating the data sources had a “significant tracking error.” He said Affirm typically doesn’t provide mid-quarter volume updates, so he wasn’t going to say more about it, but he emphasized that quarter-to-date trends appeared favorable and in line with internal expectations.

Key Takeaway

The 12% jump in Affirm’s stock yesterday certainly looks justified based on the CFO’s upbeat comments and direct rebuttal of volume concerns. These remarks support the view that Affirm’s business remains healthy despite macro headwinds.

At current valuations, though, with a P/E exceeding 100 and going for 45x estimates, the stock trades at a premium that reflects some wild growth expectations. Wall Street is looking for Affirm to expand earnings at an eye-watering 153% annually for the next five years — though that’s not unexpected for a company newly profitable.  

However, rising unemployment and cautious Fed signals underscore the risks for a consumer-facing lender. Affirm’s structural advantages won’t bulletproof the business, but should make it resilient in a downturn. Still, I’d be cautious about aggressively buying the stock here, preferably waiting for the inevitable pullback before jumping in with both feet.