3 Reasons to Buy Upstart Stock Like There's No Tomorrow

Upstart Holdings (UPST) has been making waves in the lending industry with its innovative use of artificial intelligence (AI) and machine learning to improve access to affordable credit while reducing risk and costs for lenders. Despite the company's high valuation and market volatility, there are several compelling reasons to consider buying UPST stock. Here are three reasons to buy Upstart stock like there's no tomorrow:

1. AI-driven Underwriting Model:
Upstart's AI-driven underwriting model is a game-changer in the lending industry. By analyzing thousands of variables, including non-traditional data points like education, job history, and utility payments, Upstart can make more accurate risk assessments than traditional, credit-score based models. This allows Upstart to approve borrowers who might have been overlooked by traditional lenders, expanding its potential customer base and driving growth.


2. Expansion into New Loan Types:
While Upstart is primarily a personal loan platform, it has been expanding into auto loans and home equity lines of credit (HELOCs). In Q4 2024, Upstart originated $43 million in auto loans and $27 million in HELOCs, representing just over 3% of its total volume combined. However, these volumes grew sequentially by 61% and 59%, respectively. The auto loan market represents a $677 billion opportunity, more than four times the size of the personal loan market, while homeowners are sitting on about $35 trillion in home equity, presenting a massive opportunity in HELOC lending. If Upstart can continue to scale rapidly in these areas, its loan volume could multiply several times from here, driving significant revenue growth.


3. Strong Financial Performance and Growth Trajectory:
Upstart has consistently reported strong financial results, even in a challenging lending environment. In Q4 2024, Upstart's revenue increased by 56% year over year and 35% sequentially, while its conversion rate (percentage of applicants who get a loan) increased from 11.6% a year ago to 19.3%. Additionally, Upstart's profitability improved dramatically, with an adjusted net margin of nearly 14%. The company's guidance for 2025 includes an adjusted EBITDA margin of 18% and being "at least breakeven" on a GAAP net income basis. As Upstart continues to grow its loan volume and improve its underwriting model, it can expect to see further improvements in profitability.


In conclusion, Upstart's AI-driven underwriting model, expansion into new loan types, and strong financial performance make it an attractive investment opportunity. Despite the company's high valuation and market volatility, the potential for significant growth and improved profitability make UPST stock a compelling choice for long-term investors. As always, it is essential to conduct thorough research and consider your risk tolerance before making any investment decisions.