Upstart (UPST -9.39%) capped off a transformational 2024 with a blowout fourth-quarter earnings report. The financial technology (fintech) innovator exceeded Wall Street expectations by posting 56% year-over-year revenue growth for the period that ended Dec. 31, with the pace accelerating from the prior quarter.
From years of struggling to generate consistent profitability, company guidance for at least a break-even net income for 2025 highlights a rapidly improving outlook. On the other hand, with the stock already returning 204% over the past year, investors may be wondering — can the rally keep going, or has the opportunity already passed?
Let’s discuss whether Upstart stock is a buy now.
Upstart leading AI-powered growth
Artificial intelligence remains one of the most important stock market investing themes as it reshapes the global economy. The technology’s ability to automate complex workflows and offer unique analytical insight is seen as a game changer for business productivity.
By this measure, Upstart stands out as an AI pioneer, incorporating machine learning algorithms as a central part of its unique lending marketplace platform for the past decade and into its 2020 IPO. Compared to the typical process that focuses on a borrower’s FICO credit score (a product of the Fair Isaac Corporation), Upstart utilizes its proprietary AI-driven underwriting model to assess creditworthiness and set interest rates.
The method considers more than 2,500 variables, including education history and industry of employment, alongside traditional variables to more accurately predict repayment rates and the underlying risk.
Image source: Getty Images.
Upstart primarily connects borrowers with a network of more than 100 partner banks and credit unions, creating a scalable ecosystem that generates related fees as core income. The trends suggest the strategy is working.
In the latest fourth quarter, the company originated 245,663 loans, totaling $2.1 billion in value, up 68% from the prior-year quarter. The performance metric that stood out was the 19.3% conversion rate, reflecting the proportion of loan applicants who complete the process and receive funding, up from 11.6% last year.
A resilient economic environment has allowed Upstart to capitalize on strong demand for personal loans, auto financing options, and home equity lines of credit (HELOC). Perhaps the bigger takeaway is the company’s brand momentum between borrowers and marketplace lenders as a growth tailwind.
Upstart is guiding for 2025 revenue to reach $1 billion, representing a 58% increase from 2024, which should translate into a ramp-up in profitability. According to Wall Street analysts tracked by Yahoo! Finance, the 2025 adjusted earnings per share (EPS) forecast of $1.39 would reverse the loss of $0.20 in 2024.
| Metric | 2024 | 2025 Estimate |
|---|---|---|
| Revenue | $637 million | $1 billion |
| Revenue growth (YOY) | 24% | 58% |
| Adjusted EPS | ($0.20) | $1.39 |
Data source: Yahoo Finance. YOY = year over year.
Reasons for caution
There’s a lot to like about Upstart as a credit services disrupter, with recent results that speak for themselves. That said, it’s always a good idea to take a critical look at any potential investment and think about what could go wrong.
The challenge here is the understanding that this segment of fintech lending is highly competitive, with numerous companies such as SoFi Technologies, LendingTree, and Rocket offering alternative solutions and targeting the same market opportunity. Upstart may have had a lead in leveraging AI, but a general trend is for the industry to implement similar capabilities in their lending platforms. It’s still unclear if Upstart has a sustainable advantage or technological edge that will allow it to continue capturing market share.
In terms of valuation, Upstart shares seem pricey, trading at 57 times their consensus 2025 EPS as a forward price-to-earnings (P/E) ratio. That level can be justified based on the operating and financial trend, but it could also turn to pressure the stock if new signs of weakness emerge. In this case, the company would remain exposed to broader macroeconomic conditions, where the possibility of a deteriorating labor market or rise in interest rates could pressure lending demand as a risk for investors to balance.
My take: Cautiously bullish
I believe there are enough positives in the outlook for Upstart to stay cautiously bullish on the stock. Investors willing to stomach some potential stock market volatility can find a place to buy Upstart shares for a diversified portfolio. The company’s AI leadership and strong growth momentum make it well positioned to reward shareholders over the long run.
Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.
