Upstart's Loan Volume Surges 154% Year-Over-Year, Target Price Raised to 70 Dollars

Upstart, an AI-driven lending platform, has seen its target price raised from 50 dollars to 70 dollars by Morgan Stanley, which maintained a "neutral" rating. This adjustment follows the release of Upstart's financial report, which highlighted a substantial increase in loan origination volume. The total loan volume facilitated by Upstart reached approximately 2.82 billion dollars, representing a 154% year-over-year increase and a 32% sequential increase. This growth is largely driven by the contributions from new products, showcasing the company's innovative use of AI in the lending sector.

The upward revision in the target price reflects a positive outlook on Upstart's financial performance and its strategic initiatives. The company's ability to optimize its product structure and enhance its pricing capabilities has been crucial in driving growth. Upstart's AI-driven models have enabled more accurate risk assessments and improved loan approval processes, leading to increased loan origination volumes.

Upstart's focus on product innovation has been a key driver of its success. By continuously refining its AI algorithms and introducing new products such as small loans, auto loans, and home loans, Upstart has been able to better serve its customers and expand its market reach. This innovative approach has not only attracted more borrowers but also strengthened the platform's competitive position in the lending market. These new products have already contributed more than 10% to the quarterly loan volume, indicating a promising growth trajectory.

The company's financial performance has also improved significantly. For the first time since the first quarter of 2022, Upstart achieved a net profit under US GAAP. This turnaround is attributed to pricing optimization and an improved business mix. The company's take rate, or the platform's fee rate, has shown flexibility for improvement. In the second quarter, the loan origination volume grew, and the revenue per loan also increased, contributing to higher gross margins. Effective cost management has further supported Upstart's return to profitability and its potential to maintain this growth trajectory.

Upstart's management has optimized interest rates and fees, providing flexibility for the take rate to increase. The second quarter saw a growth in loan origination volume, with each loan generating higher revenue, contributing to increased gross margins. Effective cost management has supported Upstart's return to profitability and its potential to maintain this growth trajectory. As the company scales, operational leverage will further enhance profitability and improve operating margins.

Additionally, the adjustment in the borrower structure has improved unit economics. By covering a broader range of creditworthy individuals, the platform has increased its fee rate per loan. In the second quarter of 2025, the proportion of super-prime credit borrowers decreased to 26% from 29% in the previous quarter, indicating that the platform can serve more mid-tier credit customers while maintaining risk control. This strategy allows Upstart to generate higher returns by serving a more diverse customer base. The company is also committed to enhancing automated approvals and risk model accuracy, achieving high levels of automated lending in new verticals, which helps control costs and accelerate lending processes.

Despite the positive outlook, there are concerns about the company's valuation and its sensitivity to macroeconomic factors. The rapid growth in loan origination volumes has led to a higher valuation, which may raise questions about sustainability. Additionally, the lending sector is highly sensitive to economic cycles, and any adverse changes in the macroeconomic environment could impact Upstart's performance. The company's business volume and loan performance are highly dependent on the overall economic and credit environment. If the macroeconomic conditions deteriorate, such as an increase in unemployment or a decrease in income, borrowers' repayment ability and willingness to borrow may be affected, leading to an increase in credit losses and directly impacting the platform's performance. Upstart's focus on serving individuals with relatively weaker credit profiles means that this customer segment may experience a more significant increase in default rates during economic downturns, posing a challenge to the lending model in extreme scenarios.

Moreover, while the current macroeconomic environment is relatively favorable, if inflationary pressures resurface, leading to further interest rate hikes, demand for consumer loans may decrease, and funding costs may rise rapidly. This could reduce the willingness of both borrowers and lenders to engage in lending activities and increase the difficulty for Upstart to secure funding for loans, thereby weakening its loan origination volume. Conversely, a decrease in interest rates could be beneficial, but this factor is dependent on macroeconomic policies and beyond the company's control.

In summary, while Upstart's fundamentals continue to improve, Morgan Stanley emphasizes that the current stock price already reflects a high degree of optimism. They believe that Upstart's valuation threshold has increased, and with the current favorable macroeconomic environment, market expectations for future performance growth are relatively high. If future growth or earnings fall short of expectations, the high valuation could lead to stock price volatility. Therefore, based on the potential for earnings growth and external risk factors, Morgan Stanley has chosen to maintain a "neutral" rating, indicating that the current price has balanced upside and downside potential, with no clear indication of significant excess returns or substantial downside risk in the short term.