Down 39%, Is It Finally Time to Buy Upstart Stock?

Despite progress in its turnaround, artificial intelligence (AI) stock Upstart (UPST 2.94%) disappointed the market with its first-quarter earnings, and the stock is down 39% this year. Is it an opportunity to buy on the dip? Or a value trap? Let’s check it out.

Upstart is disrupting credit with AI

Upstart’s AI and machine-learning-driven credit evaluation platform represents a fundamental change in how lenders assess credit. Legacy credit scores use a handful of criteria to see if a potential borrower is trustworthy, leaving excellent candidates sidelined. According to management, Upstart’s model approves more borrowers without adding risk to the lender. That’s a win-win for both parties.

Image source: Getty Images.

When it became a public company six years ago, Upstart had only 10 lending partners, and one in particular that presented a huge majority of its business. Today it has more than 100, including a deal it announced just this week with USF Credit Union, a Florida-based financial cooperative.

It has branched out of its original category of personal lending into auto lending and home products, and these have been fast-growing segments, with originations up 300% and 250%, respectively, year over year in the 2026 first quarter. Part of the model includes working with institutional partners that fund its loans so that it has low exposure to interest rate changes and defaults.

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NASDAQ: UPST

Upstart

Today’s Change

(-2.94%) $-0.82

Current Price

$27.02

Key Data Points

Market Cap

$2.6B

Day’s Range

$26.22 - $27.48

52wk Range

$23.96 - $87.30

Volume

127K

Avg Vol

5M

Gross Margin

97.87%

While Upstart reported fabulous growth when interest rates were low, it hasn’t been as successful in the higher-rate environment. Even its robust algorithms have a harder time identifying good borrowers when rates make it a challenge to pay back loans, and there are fewer people who are looking for loans at high rates.

It does seem to have hit rock bottom, though, and it’s been reporting higher growth for several quarters now.

UPST Revenue (Quarterly) data by YCharts

In the first quarter, transaction volume increased 77%, and revenue was up 44%. That’s excellent progress given the continued high-rate environment. However, it’s come at a cost, and it reported a $7 million net loss for the quarter.

One exciting update is that Upstart is applying for a bank charter, which could expand its operations.

Value trap? Opportunity? Or neither?

My personal opinion is that Upstart is neither a great opportunity or a value trap. The business model looks strong, but it’s facing competition from other credit disruptors as well as the king of the field, Fair Isaac, which is also using AI to improve its scoring methods. It’s still expensive, trading at 69 times trailing-12-month earnings, which is why it’s not quite a bargain chance to buy nor cheap enough to be called a value trap.

For now, I’d continue to stay on the sidelines and wait for more sustained growth and stability.