Actions of Arrived (NASDAQ: UPST) the stock gained 51% in 2024 according to data provided by S&P Global Market Intelligence. Credit reporting company AI may have hit bottom, and the market expects falling interest rates to help it climb back up.
Upstart stock gained many fans early on when it hit the market. It had incredibly high growth and skyrocketing profitability. Investors could not imagine that the trend could reverse under different conditions, but the reason behind at least part of its initial success was the then-zero interest rates. The stock has not held up well to rising interest rates and Upstart stock is still 85% off its highs.
The concept is simple and convincing. Upstart uses artificial intelligence and machine learning to assess credit risk and help creditors make better lending decisions. Specifically, through the Upstart platform, banks can approve more borrowers without adding default risk, according to management. The more money they can safely lend, the more money they can make. More borrowers can get the large loans they need to buy a home, car, or other major transaction, making it a win-win for everyone.
However, higher interest rates mean higher risk of default, and Upstart’s model does not approve loans at the same rates as before. This led to lower volumes and revenues, and profits turned into losses.
It says it has a market opportunity of more than $3 trillion, but it partners primarily with small credit unions rather than large banks, which could limit its exposure to that opportunity.
There’s a lot to like about Upstart and its long-term chances. Its approved loans are holding up and performing as expected, which speaks volumes about the credibility of its model. Ultimately, creditors are likely to adopt its data-rich model, which, over time and with more experience, should provide a better product than the previous model. traditional credit scoring platforms. She expects progress in 2025, and lower interest rates should lead to better results across the board. Once this stage is passed, its business could boom.
With last year’s price rise, Upstart stock is starting to look expensive again; it trades at 9 times trailing 12 month sales.
This stock is for very risk-tolerant investors, and even if that describes you, I wouldn’t make it a core part of your portfolio.
Before buying shares in Upstart, consider this:
