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Can the AI Boom Rebuild Investor Enthusiasm for Upstart Holdings (NASDAQ: UPST)?

Artificial intelligence is the latest craze on Wall Street, after the revolutionary release of ChatGPT by OpenAI in November 2022. The intelligent chatbot quickly massed over a million users shortly after its launch and has only continued to grow in popularity. Within 40 days, the chatbot reached 10 million daily active users (DAUs).

ChatGPT’s rise to fame has renewed enthusiasm for AI opportunities among investors. AI stocks have performed very well so far into 2023. The Global X Robotics & Artificial Intelligence ETF (NASDAQ: BOTZ) is up nearly 20% and some individual companies are performing even better, like C3 AI (NYSE: AI) which is already up over 131% in 2023, as of this writing.

One often over-looked company that heavily relies on AI and machine learning is Upstart Holdings, Inc. (NASDAQ: UPST). Over the past year, Upstart has seen shares return -79%, as the stock was caught up in the hefty growth sell-off in 2022.

However, Upstart shares are off to a good start in 2023, up 67%. With renewed enthusiasm and demand for AI-based opportunities, could Upstart “rise from the ashes?” Let’s break down Upstart’s business model and analyze its strengths and weaknesses, which could help determine whether the lending company is “investible.”

Upstart Business Model

Upstart is a San Mateo, CA-based online lending platform that uses artificial intelligence and machine learning to evaluate the creditworthiness of borrowers. The company uses a proprietary algorithm to analyze various data points such as education history, employment history, and income, in addition to traditional factors like credit score and debt-to-income ratio. Based on this analysis, Upstart provides loans to borrowers who might otherwise be considered too risky by traditional lending institutions.

Once a loan is originated, Upstart sells it to investors, which helps to spread out the risk and generate a return for investors. Upstart also charges borrowers an origination fee, typically around 1%-6% of the loan amount, which helps to offset the company’s operational costs and generate revenue.

Source: Upstart
Source: Upstart

What sets Upstart apart from other lending platforms is its use of non-traditional data to evaluate creditworthiness. This allows the company to reach a wider pool of borrowers and to provide loans to those who might not be able to get financing from traditional banks or other lenders.

However, a potential competitor could potentially undercut Upstart by offering similar services at a lower cost. To maintain its competitive edge, Upstart will need to continue to refine and improve its AI and machine learning algorithms, as well as maintain its strong brand and reputation in the market.

In terms of the size of Upstart’s economic moat, it is difficult to say for certain as the lending and finance industries are constantly evolving. However, the use of cutting-edge technology and non-traditional data to evaluate creditworthiness does provide a certain level of differentiation that could make it difficult for competitors to catch up. Additionally, if Upstart can establish itself as a trusted and reliable lender in the market, it could create a loyal customer base that would be difficult for competitors to steal away.

UPST: SWOT Analysis


  • Unique business model: Upstart uses artificial intelligence and machine learning to evaluate creditworthiness, which sets it apart from traditional lending institutions and allows it to reach a wider pool of borrowers.
  • Strong brand and reputation: Upstart has established itself as a trusted and reliable lender in the market, which could help to attract and retain customers.
  • Data-driven approach: By using non-traditional data to evaluate creditworthiness, Upstart can make more informed lending decisions, which could lead to lower default rates and higher returns for investors.


  • Dependence on technology: Upstart’s business model relies heavily on its proprietary AI and machine learning algorithms, so if these technologies were to fail or become obsolete, the company’s operations could be severely impacted.
  • Lack of differentiation from other online lending platforms: While Upstart’s use of AI and machine learning sets it apart from traditional lenders, there are a growing number of online lending platforms that use similar technologies and business models.
  • Limited market size: The online lending market is still relatively small compared to the traditional lending market, which could limit Upstart’s growth potential.
Source: Upstart
Source: Upstart


  • Growing market demand: As more people turn to online lending platforms for financing, there is a growing opportunity for Upstart to capture a larger share of the market.
  • Expansion into new markets: Upstart could expand into new geographical markets, which could help to increase its customer base and revenue.
  • Diversification of products and services: Upstart could expand its product offerings to include other financial products and services, which could help to diversify its revenue streams and reduce its dependence on the lending market.


  • Competition from established lenders: Upstart faces competition from established traditional lenders, as well as from other online lending platforms.
  • Regulation: The online lending industry is heavily regulated, and changes in regulations could impact Upstart’s operations and profitability.
  • Economic downturns: Economic downturns could result in higher default rates and lower demand for loans, which could negatively impact Upstart’s financial performance.

Analysts’ Consensus: “Moderate Sell” Rating With $15.29 Price Target

After a miserable 2022, analysts are not in the slightest bullish on Upstart. Out of the thirteen Wall Street analysts covering the stock, seven maintain a “sell” rating and the remaining six have a “hold” rating.

Across the thirteen analysts, Wall Street has an average consensus price target of $15.29 for Upstart. This represents a potential downside of -30.81% from its current price of $22.10, as of this writing.

Source: TipRanks
Source: TipRanks

Recent Quarterly Results and Outlook

The third quarter of 2022 was rough for Upstart. The online lending company reported total revenue of $157 million, a decrease of 31% year-over-year. Loan transaction volume dropped 48% to $1.9 billion across 188,519 loans. Overall, Upstart reported a net loss of $56.2 million and an adjusted net loss of $19.3 million. This was a significant drop from Q3 2021’s net income of $29.1 million.

For the fourth quarter of 2022, management has issued the following guidance:

  • Revenue of approximately $125 to $145 million
    • Revenue from fees of approximately $160 million
    • Net interest income of approximately ($25) million
  • Contribution Margin of approximately 54%
  • Net Income of approximately ($87) million
  • Adjusted Net Income of approximately ($40) million
  • Adjusted EBITDA of approximately ($35) million
  • Basic Weighted-Average Share Count of approximately 82.0 million shares
  • Diluted Weighted-Average Share Count of approximately 89.3 million shares

Upstart will release the fourth quarter and full-year 2022 financial results on February 14, 2023, after the market closes.

Overall, Upstart is in a very rough position currently. The company struggled in 2022 and it will take some time before investors can warm up to its stock again. Upstart may be getting a temporary boost that is currently lifting all stocks with ties to AI, but it will need to demonstrate a meaningful rebound in its quarterly financial results to build any lasting momentum.

Upstart’s AI algorithm was once a key selling point for investors. However, the growing prevalence of AI across every industry will only likely flush out those that originally had the “first mover advantage.” Financial services is a key industry that is already looking to adopt AI into its operations, which could make Upstart just another lender over time.

Disclosure: No position. Spotlight Growth has no relationships with any of the companies mentioned in this article and did not receive payment in any form for its creation. This is an opinion article and is not meant to be financial advise. We are not broker-dealers or investment professionals. Please conduct your own due diligence. For more information on our disclosures, please visit:

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