While Upstart shares (NASDAQ: UPST) started trading in the public market with significant momentum, overall, it’s been a rocky journey for shareholders. The stock has plunged 91% since reaching its all-time high in October 2021.
However, 2023 has sparked a revival for Upstart. As of now, the stock has made a remarkable rebound of 177% this year. The business has the potential to disrupt, but there are also reasons for caution.
Is it feasible for Upstart shares to maintain their 2023 price surge?
Upstart, the fintech company, has been rewarding its investors thus far in 2023, with the stock price soaring by 127% as of June 26. This impressive performance, however, should be evaluated within the proper context.
Approximately 20 months back, Upstart shares were trading at over $400 per share. However, concerns over potential interest rate hikes to battle overwhelming inflation triggered a substantial price drop starting in October 2021. By the end of 2022, the stock was available for just about $12 per share. Despite the promising performance in 2023, Upstart’s stock price stands at $32 per share, indicating a 91% decline from its all-time peak.
Therefore, while Upstart’s aspects may be attractive to short-term traders, long-term investors should be cautious due to significant concerns.
The Promising Aspects of Upstart
Upon its introduction in 2021, Upstart attracted investors with its advanced technology, unique business model, and rapid growth. The fintech firm uses artificial intelligence (AI) to evaluate loan requests, which it claims offers a more accurate assessment of the borrower’s creditworthiness and a more efficient process. Around two-thirds of loan, requests are instantly approved via their platform, with approximately 84% fully automated. They argue their AI platform results in higher approval rates and lower default rates than traditional models.
While Upstart offers direct loans from its platform, most of its revenue comes from its collaborations with banks and other financial institutions that use Upstart’s platform to initiate loans. Upstart receives a fee for every loan that originates from its platform. As of the first quarter of 2023, Upstart had partnered with 99 banks, an increase from 50 in Q1 of the previous year. Since then, its list of partner banks has surpassed 100.
Upstart: Harnessing AI before it became mainstream
Upstart has designed a unique credit-assessment tool that utilizes artificial intelligence (AI) and machine learning to assess potential borrowers. The company offers this technology, known for reducing default rates and increasing approval rates, to its 99 lending partners, earning fees every time a loan is originated.
Since its establishment in 2012, the company has originated loans worth $33 billion. Over the years, Upstart’s growth has been impressive as it attracts more partners and borrowers who benefit from acquiring an Upstart-powered loan. While the company primarily offers personal and auto loans, its management aims to tap into the home and small-business lending markets. Collectively, these markets represent trillions of dollars in annual origination volume.
While Upstart has shown significant potential as an AI-driven fintech powerhouse, the volatility of its stock performance prompts investors to proceed with a fair measure of caution. The company’s AI-driven approach to credit assessment, increasing partnerships, and vision to expand into new markets speaks volumes about its growth potential. However, as with any investment, potential rewards must be weighed against the risks. The potential for disruption is there, but so too are the challenges. Investors considering adding Upstart to their portfolios should thoroughly assess the risks associated with this promising but unpredictable fintech stock.
