<div id="readability-page-1">Artificial intelligence (AI) is one of the driving forces behind stock market returns right now. Nvidia is the leading supplier of graphics processors for data centers, which are critical for AI development, and the company's incredible sales growth has propelled its stock to incredible gains over the past 12 months. But Interactive Brokers (IBKR 1.90%) proves that AI isn't the only way to deliver market-crushing returns for shareholders. Its online brokerage platform is experiencing incredible customer growth, revenue growth, and earnings growth, and its stock has left Nvidia (and many other AI stocks) in the dust over the past year, with a whopping 142% gain. The financial markets are likely to experience heightened levels of activity for the foreseeable future, as investors digest things like falling interest rates and a seismic shift in economic policy from the new U.S. administration. That will be a tailwind for Interactive Brokers' business. Here's why it's not too late to buy the stock. <h2>Interactive added a record number of new clients during 2024</h2> Everybody likes to make money, which is why bull markets often attract hordes of new investors buying stocks. Since the S&amp;P 500 just logged back-to-back annual gains of over 25% (something it has only done one other time since 1957), it's no surprise that Interactive added 775,000 new client accounts during 2024, the most in its history. It took the company's total client accounts to a record 3.34 million at the end of the year. Thanks to a combination of new clients and soaring financial asset prices, Interactive's client equity also climbed by 33% to $568.2 billion in the final quarter of 2024. That number is very important. Interactive earns commissions that are often calculated based on the value of the stock, options, futures, or cryptocurrency transactions executed by the client, so higher equity translates directly to more revenue. Speaking of transactions, Interactive saw a whopping 65% year-over-year increase in stock trading volume during the fourth quarter, and a 32% increase in options volume, which highlights how active investors are at the moment. The raging bull market is also driving significant demand for margin loans, which investors use to buy stocks and other financial assets. Interactive's clients were holding $64.2 billion in margin loans at the end of 2024, which was a staggering 45% increase from the end of 2023. It's a sure sign that risk appetite is soaring at the moment, because investors only borrow money to buy stocks if they feel very confident the market will move higher. <h2>Commission revenue is soaring, but falling interest rates could be a headwind</h2> Interactive generates revenue in two ways. First, it earns commissions from processing client transactions. Second, it earns interest revenue from its margin loans, and it also earns interest on the cash it stores in bank accounts (its own cash, plus the cash it holds on behalf of its clients). Interactive generated a record $5.1 billion in total revenue from all sources during 2024, which was a 19.4% increase from its 2023 result. A little over $2 billion came from commissions, which represented 31.7% growth. The remaining $3.1 billion was interest revenue, which was up 12.6%. It's great news that commission revenue is growing the fastest, because that comes from Interactive's core business. The company has less control over its interest revenue because it's tied to the direction of monetary policy, and that could soon become a headwind. The U.S. Federal Reserve raised the federal funds rate (overnight interest rates) to a two-decade high of 5.33% in 2023 to combat soaring inflation. High rates have been great for Interactive's interest revenue, but with inflation now under control, the Fed started a new cutting cycle in September last year. The central bank is forecast to continue cutting in 2025, and depending on where the federal funds rate eventually settles, Interactive's interest revenue could slowly decline over the next year or so. Since it accounts for the majority of the company's total revenue, this is a risk investors should consider. <div><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MDUzNTUvYW4taW52ZXN0b3ItaW50ZW50bHktZm9jdXNlZC1vbi10aGVpci1jb21wdXRlci1zY3JlZW5zLXdoaWNoLWFyZS1kaXNwbGF5aW5nLXN0b2NrLWNoYXJ0cy5qcGcmdz03MDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="467" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MDUzNTUvYW4taW52ZXN0b3ItaW50ZW50bHktZm9jdXNlZC1vbi10aGVpci1jb21wdXRlci1zY3JlZW5zLXdoaWNoLWFyZS1kaXNwbGF5aW5nLXN0b2NrLWNoYXJ0cy5qcGcmdz03MDA"/>Image source: Getty Images. </div> <h2>Interactive stock could be poised for further upside over the long term</h2> Interactive stock is currently at a record high following its 142% gain over the past year. Based on the company's trailing 12-month earnings per share (EPS) of $6.93, the stock is trading at a price-to-earnings (P/E) ratio of 31.6. That appears expensive at face value (since the S&amp;P 500 trades at a P/E ratio of 25.2), especially since lower interest rates could serve as a headwind for Interactive's financial results going forward. However, lower rates can also significantly boost stock market activity, as investors move away from risk-free assets like cash and into growth assets instead. That means that Interactive could build on the 31% increase in commission revenue it delivered last year, which should offset some (or all) of the lost interest revenue. I'm not suggesting that Interactive stock will beat the likes of Nvidia stock again over the next 12 months -- it simply won't generate enough revenue or earnings growth to do so. But investors who are willing to hold on to it for at least the next five years are very likely to earn a positive return. After all, this overlooked stock has soared by almost 630% since it went public in 2007, which translates to a compound annual return of 11.7%. That's better than the 10.5% annual gain in the S&amp;P 500 over the same period. </div>

IBKR

Interactive Brokers (IBKR) has outperformed Nvidia with a 142% stock gain over the past year, driven by significant customer and revenue growth. In 2024, the company added a record 775,000 new client accounts, bringing total accounts to 3.34 million. Client equity rose 33% to $568.2 billion, boosting commission revenue by 31.7%. However, falling interest rates may pose a risk to interest revenue, which accounted for a significant portion of total revenue. Despite a high P/E ratio of 31.6, the stock may still have long-term upside potential as market activity increases.

- Artificial intelligence (AI) is currently influencing stock market returns, with Nvidia leading in graphics processors for AI development.  
- Interactive Brokers has also achieved significant growth, adding 775,000 new client accounts in 2024, resulting in a record total of 3.34 million accounts and a 19.4% increase in total revenue to $5.1 billion.  
- While falling interest rates may pose a risk to Interactive's interest revenue, the company could still benefit from increased stock market activity, potentially leading to positive long-term returns for investors.  

Motley Fool

Meet the Under-the-Radar Stock That Outperformed Nvidia Over the Past Year, Thanks to a Whopping Gain of 142%