2025 continues to be a phenomenal year for the S&P 500. Including dividends, the index has generated an impressive 18.3% gain since January. And when zooming out to the last five years, index investors have more than doubled their money with a £1,000 lump sum now worth around £2,260.
However, while these returns should be celebrated, I’m growing increasingly nervous about valuations.
Most of this growth has originated from the ‘Magnificent 7’ stocks, which now represent around 35% of the entire index. And with so much capital concentrated into companies trading at lofty valuations, the risk of a correction seems elevated.
That’s why today, I’m far more interested in investing in UK stocks. The FTSE 100 has similarly reached record highs this year. But unlike in the US, there are still plenty of fantastic businesses trading at pretty reasonable prices.
Growth opportunities in London
One excellent UK stock I’ve got my eye on right now is Wise (LSE:WISE). The cross-border payments company has been making some big waves in the fintech space, with over 15.6m active users compared to just 4.7m back in 2020.
In its latest quarterly trading update, the company announced payment volumes jumped yet again by 24% to £41.2bn in the three months leading to June. That, in turn, translated into an 11% jump in underlying income reaching £362m despite Wise cutting its transaction fees as part of its market-share-stealing strategy.
Combining this with the steady stream of financial institutions now relying on Wise to handle their own international payments (including Morgan Stanley, Standard Chartered, and most recently Raiffeisen Bank), the stock is already up 37% over the last 12 months.
This momentum has put the price-to-earnings ratio at a premium of 25.3. By UK standards, that’s hardly cheap. But compared to the average fintech P/E ratio of 29 in the US, the stock seems to offer a fairly reasonable entry point given its growth.
What could go wrong?
Traditional banks still dominate the international payments space. As such, Wise has barely scratched the surface of an industry ripe for disruption. But, like all promising investments, there are still significant risks to consider.
Co-founder and CEO Kristo Käärmann owns around 18% of outstanding shares. But he controls almost 50% of all voting power. This raises some governance concerns. After all, if he starts pursuing questionable strategies, shareholders have little recourse to intervene.
At the same time, it’s essential to recognise that Wise isn’t the only modern cross-border payment solution available today.
Rival platforms like Revolut and PayPal are also seeking to disrupt this sector. And with far deeper pockets, it’s a mistake to underestimate the pressure these competitors could apply. In fact, that’s one of the main reasons why Wise is actively trying to reduce its transaction fees, which may limit longer-term profit growth.
Nevertheless, with the firm already securing the largest non-bank market share in the international Payments’s pace, management’s strategy seems to be working. That’s why I’ve just recently added this business to my portfolio over other S&P 500 opportunities right now. But it’s not the only UK stock I’ve got my eye on right now.
