Upstart stock has copped a beating this year, but that could spell opportunity for investors.
Banks have relied on Fair Isaac‘s FICO scoring system to assess the creditworthiness of potential borrowers for more than 30 years. However, Upstart Holdings (UPST +6.92%) believes this approach is outdated because the FICO score only considers a handful of basic factors which don’t paint a full picture of a person’s ability to repay a loan.
Upstart developed an artificial intelligence (AI) algorithm that analyzes over 2,500 data points to gain a better sense of a potential borrower’s creditworthiness, and it has become a popular tool for banks, credit unions, and other financial institutions.
Unfortunately, Upstart stock has declined by 35% this year amid broader concerns about the financial health of consumers, but this could actually be a solid buying opportunity for patient long-term investors. According to the analysts tracked by The Wall Street Journal, Upstart stock could soar by as much as 91% from here.
Image source: Getty Images.
A potential trillion-dollar opportunity
During the third quarter of 2025 (ended Sept. 30), Upstart said 91% of the loan applications submitted through its platform were handled autonomously by AI, with no human intervention. It would take human assessors days or even weeks to analyze as much data as Upstart’s algorithm can process practically instantly, so this AI-powered approach creates a much faster customer experience.
Automation is a key pillar in Upstart’s goal to deliver “always on” access to credit, meaning the company wants to give consumers the ability to take out financing at any time of the day using their smartphones, with no delays. This approach is proving extremely popular, because Upstart originated 428,056 loans during the third quarter, which was up by a whopping 128% from the year-ago period.
Unsecured personal loans are Upstart’s bread and butter, but the company is rapidly expanding into the automotive lending and home equity line of credit (HELOC) segments. In fact, the company grew its originations in those two markets by fivefold and fourfold, respectively, during the third quarter.
Despite broad concerns about the financial health of American consumers right now, fueled by a rising unemployment rate, Upstart said it isn’t seeing a material deterioration in consumer credit strength right now, and it’s actually noticing an improvement in some areas. It’s worth pointing out that investors had similar concerns when interest rates soared in 2022 and 2023, yet loans approved by Upstart’s AI-powered models actually outperformed loans originated through traditional assessment methods during that period.
Earlier this year, Upstart CEO Dave Girouard said he expects all human-driven credit assessment methods to be replaced by AI over the next 10 years. More than $25 trillion worth of loans are originated every year across all categories worldwide, generating $1 trillion in fee revenue, so this is an enormous financial opportunity for Upstart as the leader of the AI transition.
Today’s Change
(6.92%) $2.91
Current Price
$44.97
Key Data Points
Market Cap
$4B
Day’s Range
$43.28 – $45.01
52wk Range
$31.40 – $96.43
Volume
107K
Avg Vol
7.2M
Gross Margin
97.61%
Dividend Yield
N/A
Upstart’s revenue is soaring
Upstart generated $277 million in total revenue during the third quarter, which was a whopping 71% increase from the year-ago period. Despite the strong result, it was actually slightly less than the $280 million in revenue management had forecasted.
The reason for the miss was a reduction in Upstart’s loan approval rate. Its AI models took a more conservative approach to new borrowers during the quarter due to some economic volatility, approving just 20.6% of applications. That was up from 16.3% in the year-ago period, but down from 23.9% in the second quarter of this year. Fewer originations means less revenue.
Turning to the bottom line, Upstart carefully managed costs during the third quarter which led to a surge in its profits on a generally accepted accounting principles (GAAP) basis. The company’s total operating expenses grew by just 22%, and since its revenue grew at a much faster pace of 71%, its net income came in at $31.8 million. That was a big positive swing from the $6.7 million net loss it generated in the year-ago period.
On an adjusted (non-GAAP) basis, Upstart generated $71 million in earnings before interest, tax, depreciation, and amortization (EBITDA), which was up 26% year over year.
Wall Street predicts significant upside for Upstart stock
The Wall Street Journal tracks 16 analysts who cover Upstart stock, and seven have given it a buy rating. Six others recommend holding, while three recommend selling, so the analysts don’t have a clear bullish consensus.
However, they seem to agree that the stock is a little too cheap right now, because they have an average price target of $55.14, which implies a potential upside of 32% over the next 12 to 18 months. The Street-high target of $80 suggests the stock could soar by 91%.
I think those targets are well within reach, because Upstart stock is trading at a price-to-sales (P/S) ratio of just 4.3 as I write this, so it would have to more than double just to trade in line with its average P/S ratio of 10.9 since the company went public in 2020.
UPST PS Ratio data by YCharts
Based on Upstart’s lightning-fast revenue growth, its growing profits, and its enormous total addressable market, the risk-reward picture for its stock looks very attractive at the current level.