While the broader indices are trading near all-time highs, several growth stocks have yet to recover from the 2022 bear market. One such tech stock is Upstart (NASDAQ:UPST), which has declined by over 85% from its all-time high, valuing the company at a market capitalization of US$5.5 billion.
Founded in 2012, Upstart operates a cloud-based artificial intelligence lending platform in the U.S. Its platforms include personal loans, automotive retail and refinance loans, home equity lines of credit, and small-dollar loans.
Let’s see why I’m bullish on the long-term prospects of this fintech stock right now.
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The bull case for the AI stock
Upstart is positioning itself as the definitive AI-powered lending platform. Recently, CEO Dave Girouard outlined an ambitious vision to serve 100% of Americans with persistently underwritten credit across multiple product categories.
The company’s core advantage lies in its machine learning models, which are trained over a decade of loan performance data. This robust loan performance training data enables instant approvals for over 90% of loans, eliminating the need for human intervention.
Typically, traditional lenders rely on static FICO-based models. However, Upstart deploys new algorithmic improvements every 2–3 weeks, which enhances risk separation and conversion rates. This AI-native approach has delivered an approximately 9% return on assets since 2018, creating sustainable unit economics that attract private credit partnerships.
Upstart is transitioning from a single-product personal loan provider to a comprehensive lending marketplace. It expects to launch 4–5 products over the next year, including home equity loans and automotive financing, with third-party funding arrangements targeted by year-end.
Home equity represents an attractive opportunity, given traditional lenders’ 5–6-week approval processes compared to Upstart’s goal of same-day approvals. Private credit partnerships have evolved from single-year agreements to multi-year structures designed to survive credit cycles.
Around a third of current loans are tied to repeat customers. Additionally, a focus on servicing improvements aims to achieve 20% default reductions through AI optimization, which is expected to translate into strong retention and operational leverage.
In Q2 2025, Upstart reported revenue of US$257 million, a 102% year-over-year increase, driven by model improvements. This neural network enhancement increased separation accuracy by 17 percentage points over benchmark credit models, resulting in a 5 percentage point increase in conversion rates from 19% in Q1 to 24% in Q2.
The company originated US$2.8 billion in loans during Q2, the highest volume in three years, with 373,000 loan transactions representing 159% year-over-year growth.
Contribution margins improved to 58%, reflecting enhanced take rates and operational efficiencies from AI-powered servicing improvements.
New product categories are gaining substantial momentum, with Auto growing 87% sequentially and Home expanding 67% quarter-over-quarter. Both Auto and small-dollar loans surpassed US$100 million in quarterly originations for the first time. Combined, newer products accounted for over 10% of total originations and drove nearly 20% of new borrower acquisition.
Loans held on the balance sheet increased to US$1.02 billion as new products scale toward third-party funding arrangements. Management expects most funding transitions to occur by year-end, which should release balance sheet capacity and improve capital efficiency.
Is UPST stock undervalued?
Analysts tracking UPST stock forecast sales to increase from US$636.5 million in 2024 to US$2.25 billion in 2029. In this period, adjusted earnings are forecast to expand to US$4.67 per share, compared to a loss per share of US$0.20.
Currently, UPST stock trades at a forward price-to-earnings multiple of 28.5 times, which is reasonable. At a similar multiple, the AI stock should trade at US$133 in early 2029, indicating an upside potential of 130% from current levels.
