Upstart (UPST): a revolution in AI-assisted lending, but at what cost?

Upstart $UPST experienced impressive growth in 2024 - revenue grew 56%, leading to 200% stock growth. Its AI enables more accurate credit scores, setting it apart from traditional banks. It is expected to turn a profit for the first time in 2025, but the question remains whether the current share price is still attractive to investors.

1. AI as a competitive advantage

- It doesn't just use FICO scores, but analyzes 2,500 variables (education, industry, work history).

- Helps estimate risk more accurately and increase conversion rate of approved loans.

2. Rapid growth of brokered loans

- 245,663 loans worth $2.1 billion in 2024 (+68% compared to Q3 2023).

- Conversion rate increased to 19.3% (up from 11.6% in the previous year).

3. Strong outlook for 2025

- Expected revenue growth of 58% to US$1 billion.

- First positive net income with expected EPS of $1.39.

Risks and challenges:

1. Extremely competitive fintech market

- SoFi Technologies (SOFI), LendingTree and Rocket are working on their own AI models.

-If competitors offer similarly accurate algorithms, $UPST could lose market share.

2. Macroeconomic risks

- Higher interest rates, a slowing economy, and unemployment could reduce demand for credit.

- Greater risk of loan defaults in an economic downturn.

3. High equity valuations

- Forward P/E = 57, which is very high for a company that has yet to reach profitability.

- Historical volatility: stock price surpassed $400 in 2021 but fell to $20 during the 2022 selloff.

- The current price of around USD 70 is below the peak, but still expensive relative to revenue and profitability.

Is it worth buying Upstart now?

Why invest?

- The AI approach to loan approvals is disruptive and has growth potential.

- Rapid revenue growth (56% in 2024, 58% expected in 2025).

- First year of profitability may attract additional investors.

What to watch out for?

- High competition in AI lending may reduce Upstart's advantage.

- Macroeconomic risks may slow loan market growth.

- Expensive stock valuations may mean the best buying opportunity has already passed.

➡ Conclusion: Upstart $UPST is an interesting growth stock, but it has already been through a strong rally. For long-term investors, it may be a good bet on AI in finance, but short-term volatility risk is high. For cautious investors, it may be wiser to wait for a better entry price.