Should I Buy Upstart (UPST)? Finance YouTuber Analysis

The analyst suggests Upstart, an AI-driven lending platform, could 5x its market cap if its AI model proves effective. The model's lower cost of origination and greater convenience for consumers could lead to significant market share, even if loan performance is only near traditional levels. More data is needed to confirm its effectiveness.

“I can easily see Upstart growing to a market cap above $15 billion, up from its current $3 billion market capitalization.”

The analyst maintains a 'buy' rating on Upstart, citing its asset-light AI lending platform and significant revenue recovery. Despite past volatility and a shift in its business model to include direct lending, the company's unit economics and profitability have been proven at a smaller scale. The current valuation is attractive, trading at a forward P/E of 14.7, which is cheaper than many stable, low-growth companies, offering substantial upside potential if its AI lending model proves effective during a recession.

“Upstart has huge huge upside, but it also has a lot of risk embedded. It's a high-risk high-reward type situation, but I think the risk versus reward is worthwhile for investors at current market prices.”

Despite recent setbacks like increased loan delinquencies and convertible debt issuance, Upstart is recommended for its projected $1 billion revenue this year (66% increase) and 20% earnings margin. Its use of AI has significantly reduced customer acquisition costs and loan onboarding costs, allowing it to offer lower rates.

“Upstart still expects to reach $1 billion in revenue this year, an increase of 66% from last year and margin of 20% in earnings. That alone puts it on our list with annualized growth of 45% and adjusted valuation under .2 time sales and this company is using AI to transform the loan industry.”

The YouTuber recommends Upstart Holdings, noting its effective use of AI to reduce customer acquisition costs and loan onboarding costs, while offering lower loan rates. This AI-driven efficiency is expected to drive 58% sales growth this year. Despite a current price-to-sales of 5.96x, its rapid growth quickly makes it a good deal.

“Upstart Holdings ticker UPS is another stock not necessarily a pure play in AI, but a company leveraging AI to be the best at what it does.”

The YouTuber identifies Upstart Holdings (UPST) as a short squeeze candidate, with 34% of shares shorted, 46% institutional ownership, and 13% insider ownership. Despite rising consumer credit delinquencies, Upstart is an AI leader expected to return to 30% revenue growth and achieve its first net income profit next year, potentially forcing shorts to cover.

“this is a leader in AI that could see strong efficiency gains to come the company has expected to return to 30% Revenue growth next year and to book its first net income profit.”

The YouTuber recommends Upstart as a startup in the credit space, building its model around AI for loan risk assessment. They highlight its model trained on 65 million repayment events, leading to higher approvals and lower defaults, and its current valuation at 3.5 times sales, with revenue growth expected to return to double digits and profitability next year.

“Revenue growth is expected to return to double digits next year and drive to the company's first profitable year Shares are here are already just 3.5 times on a price to sales basis so in that value territory for an AI pick”

The YouTuber expresses a positive outlook on Upstart, praising its use of AI and machine learning to revolutionize the loan approval process by analyzing data beyond traditional credit scores. He emphasizes Upstart's dedication to financial inclusivity, providing fair chances to borrowers often overlooked by traditional systems, and its potential to disrupt the lending industry.

“I like how they're disrupting the industry and they're challenging how the process and institutions are able to provide loans”

The analyst suggests Upstart as a speculative buy if interest rates begin to decline. They note that Upstart's core business of signing and retaining banking partners is strong, but investor funding for loans is currently hampered by rising rates. A reversal in interest rate policy could lead institutional investors to re-engage, significantly improving Upstart's stock performance.

“All of a sudden if the interest rates start coming back down, maybe all of a sudden then you see the funding dollars for Upstart flow back in.”

The analyst advises avoiding Upstart due to significant cash burn, a large increase in loans held on its balance sheet (which is not its core business), and the uncertainty of its AI lending model's performance in a true economic downturn. The company relies heavily on a concentrated group of lending partners, and current macroeconomic conditions are causing banks to pull back, impacting loan volume and revenue. While there are some positives like adding new banking partners, the overall risk-reward is unfavorable given the current environment.

“I put this one in the too hard bucket... you don't have to buy at the height of the risk which could be right now.”