Zip Co Ltd (ASX: ZIP) shares were among the standout performers on Wednesday.
The buy now, pay later (BNPL) provider surged 8.5% to $3.20, comfortably outperforming the S&P/ASX 200 Index (ASX: XJO), which rose just 0.4%.
The rally extends Zip's gain over the past month to 19%. While the shares remain down about 2% year to date, they're now up roughly 13% over the past 12 months.
So, what's suddenly got investors excited?
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America is the prize
A big part of the optimism centres on Zip's growing US business.
The company has spent several years investing heavily in expanding both its customer base and product offering across America, which has become its largest market.
That's a market investors simply can't ignore. Compared with Australia, the US buy now, pay later market remains relatively under-penetrated, giving Zip a sizeable runway for future growth as more consumers and merchants embrace flexible payment options.
Management of Zip shares has also been busy strengthening its distribution network. Late last year, Zip expanded its partnership with Stripe, allowing merchants using the payments platform to seamlessly offer Zip's services at checkout.
It's a meaningful opportunity. Stripe serves millions of businesses globally, giving Zip access to a huge pool of potential merchants without having to knock on every door individually.
UBS believes that Zip shares could have a strong finish to FY 2026, with robust transaction growth in the key US market. According to a recent note, the broker has been pleased to see that US consumer spending has been resilient despite global uncertainty.
The numbers are finally backing the story
For years, investors questioned whether BNPL companies could generate sustainable profits.
Zip is starting to answer that question. Over the past several quarters, management has tightened lending standards, controlled costs, and shifted its focus firmly towards profitability.
Those efforts are paying off. In its third-quarter FY26 update, Zip upgraded its group cash EBITDA guidance to at least $260 million, up from previous guidance of around $248.6 million.
That's exactly the type of earnings upgrade investors in Zip shares like to see. It suggests the company is proving it can grow while also delivering stronger profits. A combination that was largely absent during the sector's boom years.
Not without risks
The opportunity is attractive, but investors shouldn't ignore the risks of Zip shares.
Competition remains fierce. Zip is battling global heavyweights including Klarna, PayPal, Block's Afterpay business, traditional banks, and credit card providers. Any increase in competitive pressure could squeeze margins or slow customer growth.
Like many growth companies, Zip is also highly sensitive to interest rates, consumer spending, employment conditions, and overall market sentiment.
That means shareholders should probably expect plenty of volatility along the way.
What do the experts think?
Broker sentiment remains overwhelmingly positive. Analysts at UBS have retained their buy rating on Zip shares with an improved price target of $4.10, which points to a further 28% upside.
Meanwhile, United Capital Partners is even more bullish, with a $4.85 price target, around 52% above today's share price.
According to TradingView data, 11 of the 12 analysts covering Zip have either a buy or strong buy recommendation. The average price target sits at $4.17, implying potential upside of around 30% from current levels.
The most optimistic analyst believes Zip shares could climb to $5.59, representing upside of roughly 75%.
