1 Unstoppable Stock That Just Grew Sales by 264%

Artificial intelligence (AI) has the power to transform the way we do business. Aside from the obvious benefits of its predictive abilities, the technology is also capable of completing complex tasks in a fraction of the time humans would take, and with far less input.

Upstart Holdings (UPST 2.76%), which uses AI to assess potential borrowers when originating loans for banks, is a prime example. Where the traditional FICO scoring system analyzes just a handful of metrics, Upstart's AI-powered algorithm looks at over 1,600 data points and still manages to deliver an instant decision 70% of the time.

The stock was one of the best performers last year, with a 271% gain, and its 2021 earnings report, released on Feb. 15, provided further evidence as to why. 

Image source: Getty Images.

Unpredictable, in the best possible way

At the beginning of 2021, Upstart told investors it would generate $500 million in revenue for the full year. In the quarters that followed, it revised that guidance upward to $600 million, and then $750 million, before its official 2021 results, released this week, revealed a final figure of $849 million. It highlighted that even the company itself is struggling to predict just how fast it will expand.

But those numbers might be trounced in the future thanks to Upstart's entry into the automotive lending business. The company started out originating unsecured personal loans for travel, renovations, and medical costs, among other purposes, but last year it made a timely acquisition of software company Prodigy, a developer of sales platforms for car dealerships. 

Upstart's goal was to merge Prodigy's sales software with its digital lending technology to create a two-in-one platform for car dealers to offer financing to customers at the point of sale. In October 2021, the company officially unveiled Upstart Auto Retail, which is the finished product. It's Upstart's gateway into the $727 billion-per-year car lending market, which is seven times the size of the unsecured loan market it's been relying on. 

Rapid growth, and it's just beginning

Upstart's AI algorithm originated $11.7 billion worth of loans in 2021, a staggering 244% more than the $3.4 billion it did in 2020. Considering the company only expects to originate $1.5 billion of automotive loans in 2022, it suggests its most significant growth opportunity has barely even kicked in yet. 

Upstart measures its success in the automotive segment by tracking dealer rooftops, or in simple terms, the number of dealerships that have adopted the Upstart Auto Retail platform. In the fourth quarter of 2021, that metric posted another record high.

Data source: Upstart. 

Upstart's overall progress can be seen clearly in its revenue growth. From 2019 to 2020, revenue increased by 42%, but there was a remarkable acceleration in 2021. Plus, in a rare sight for a technology company that's still in its growth phase, Upstart is now incredibly profitable. 

Data source: Upstart. 

In 2022, the company expects to generate $1.4 billion in revenue, but given its 2021 result, which blew previous guidance out of the water, there's a case to be made for significant upside from there. 

A buy for the long term

For investors who are taking the 2021 report as one piece of a longer-term puzzle, Upstart added a clue as to where it might expand next. In its investor presentation, it added business-loan origination to its total addressable market estimate for the first time, hinting that it could move into that segment in the near future. 

At $644 billion originations per year, it's only a little smaller than the automotive segment, so there could be a significant growth opportunity for the taking. But ultimately, over the very long term, Upstart will likely set its sights on the mortgage market, a $4.6 trillion-per-year behemoth.

But in the here and now, Upstart has the backing of some major Wall Street banks. Citigroup, for example, thinks the stock is worth $350 per share, some 140% higher than Wednesday's prices. It shouldn't come as a surprise, given the enormous size of the company's opportunities.