What Happened?

Shares of aI-powered lending platform Upstart (NASDAQ:UPST) fell 13.7% in the afternoon session after J.P. Morgan analyst Reginald Smith downgraded some fintech stocks due to growth and valuation concerns. Smith downgraded Upstart from Neutral to Underweight (Sell), adding "We expect the third-party funding environment to improve in 2025, which appears to be more than priced in at current levels, with shares trading nine times forward sales.".

The shares closed the day at $67.37, down 14.5% from previous close.

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What The Market Is Telling Us

Upstart’s shares are extremely volatile and have had 63 moves greater than 5% over the last year. But moves this big are rare even for Upstart and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 24 days ago when the stock gained 45.2% on the news that the company reported impressive earnings and provided an encouraging sales outlook for the next quarter, which blew past analysts' expectations. Its revenue also outperformed Wall Street's estimates during the quarter. Upstart achieved sequential 43% growth in lending volume, driven by enhancements to its predictive models. These advanced models more accurately assessed creditworthiness, leading to higher conversion rates and increased customer approvals. Despite the elevated interest rate environment which has constrained lending businesses as they scrutinize consumer creditworthiness more intensely to avoid losses, the company managed to achieve positive adjusted EBITDA.

Zooming out, we think this was an impressive quarter amid a challenging operating environment highlighting management improved grasp of the market dynamics.

Given the impressive result, Piper Sandler analyst Arvind Ramnani upgraded the stock's rating from Neutral to Overweight citing the more accommodative macro environment as rates begin to come down, as well as the improved lending business.

Upstart is up 73.7% since the beginning of the year, but at $67.40 per share, it is still trading 16.8% below its 52-week high of $81 from November 2024. Investors who bought $1,000 worth of Upstart’s shares at the IPO in December 2020 would now be looking at an investment worth $2,287.

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