Upstart (UPST): Riding the AI Lending Wave with Strategic Partnerships and Liquidity Catalysts

The fintech sector's shift toward AI-driven lending is creating opportunities for companies that can harness technology to disrupt traditional financial systems. Among them, Upstart Holdings (NASDAQ: UPST) stands out as a prime candidate to capitalize on this trend, thanks to its robust AI platform, strategic partnerships, and a series of liquidity-boosting catalysts. With a forward-looking valuation and near-term triggers such as its $1.2 billion Fortress loan purchase deal, Walmart's OneProgress collaboration, and the debut of a leveraged ETF (UPSX), Upstart is positioned to amplify its growth trajectory—despite concerns about its current valuation multiples. Here's why investors should consider this as a leveraged play on AI-driven lending.

The Fortress Deal: A Liquidity Boost with Long-Term Implications

On May 6, 2025, Upstart announced a landmark partnership with Fortress Investment Group, securing a $1.2 billion forward-flow commitment to purchase loans originated through its platform. This deal, which runs through March 2026, marks a critical step in diversifying Upstart's capital sources.

The agreement not only strengthens Upstart's liquidity—its current ratio of 14.31 (as of Q1 2025) underscores its short-term financial health—but also allows the company to scale its platform aggressively. Over 50% of its loans are now funded via committed partnerships, reducing reliance on volatile capital markets. The deal also signals institutional confidence in Upstart's AI underwriting model, which has demonstrated strong credit outcomes, even in stressed scenarios.

Financial metrics reinforce this narrative: Q1 2025 revenue surged 67% year-over-year to $213 million, driven by a 102% jump in platform loan transactions. The company's adjusted EBITDA of $43 million and a 55% contribution margin (despite a 6% sequential dip due to new product mixes) reflect operational resilience. While critics point to a negative net income and cash burn, the Fortress deal's capital inflows and Upstart's AI-driven efficiency gains suggest these metrics could stabilize in 2025.

Walmart's OneProgress Partnership: Expanding Market Reach

Upstart's collaboration with Walmart's OneProgress—a financial services platform targeting underserved consumers—is another catalyst. By integrating its AI-driven lending into Walmart's ecosystem, Upstart gains access to a vast, untapped customer base. This partnership directly feeds into its $1.01 billion full-year revenue target, as it expands into small-dollar relief loans and personal credit products.

The strategic fit is clear: Walmart's retail dominance complements Upstart's technology, enabling it to offer affordable loans to millions of Americans. For example, home equity lines of credit (HELOC) grew 52% sequentially in Q1 2025, a trend likely to accelerate with Walmart's distribution power.

The Tradr ETF (UPSX): A Leveraged Catalyst for Volatility and Liquidity

The June 10, 2025, launch of the Tradr 2X Long UPST Daily ETF (UPSX) introduces a new dynamic. This leveraged product, offering 200% daily exposure to UPST's stock, has already drawn speculative interest, driving an 8.43% price surge by June 18. While UPSX carries significant risks—including the possibility of total loss if UPST's price drops more than 50% in a day—its existence amplifies liquidity and trading activity around the stock.

For investors willing to navigate its risks, UPSX serves as a tool to bet on Upstart's AI-driven growth. The ETF's debut aligns with the broader trend of investors seeking leveraged exposure to high-growth sectors like AI and fintech, where Tradr has already launched 12 such products.

Why the Valuation Concerns Are Overblown (For Now)

Critics argue that Upstart's valuation—price-to-sales of 6.5 and price-to-free-cash-flow of 88.2—is too rich. Yet, this overlooks the $25 trillion consumer credit market Upstart is targeting and its AI-powered moat. The company's platform automates 90% of loans without human intervention, reducing costs and enabling scalability.

Upcoming catalysts will further validate this thesis:
1. Q2 2025 Earnings: Expected to show continued revenue growth (guidance: $225 million) and progress toward GAAP net income profitability in H2 2025.
2. AI Investor Day: Likely to highlight advancements in its underwriting algorithms, such as AI embeddings and real-time risk modeling, which could further differentiate Upstart from competitors.

Investment Thesis: A Leveraged Play with Near-Term Catalysts

Upstart's combination of strategic partnerships, liquidity-boosting capital deals, and AI innovation makes it a compelling leveraged play. While valuation risks exist, the near-term catalysts—Fortress funding, Walmart's distribution, and AI-driven efficiency gains—suggest the stock could outperform.

Recommendation:
- Aggressive investors (targeting 5–10% of a portfolio): Use the Tradr ETF (UPSX) for short-term exposure, but monitor it closely given its daily reset risks.
- Core investors: Buy UPST stock ahead of Q2 earnings and the AI Investor Day. A target price of $80–$100 by end-2025 is achievable if growth targets are met.
- Risk mitigation: Pair with downside protection via options or a stop-loss discipline.

The AI-driven lending revolution is still in its infancy, and Upstart's execution to date suggests it will lead the charge.

Final Note: As with all leveraged plays, investors must weigh the potential rewards against the heightened risks. Upstart's story is far from certain, but the catalysts in 2025 make it worth watching closely.