Shares of the artificial intelligence lender Upstart (UPST -3.30%) traded close to 9% lower today as of 1 p.m. ET, as the broader market evaluates upcoming moves from the Federal Reserve. Upstart also received some positive sentiment from Wall Street today.
Rising bond yields and trying to figure out how quickly the Fed may shrink its massive balance sheet has investors concerned today, particularly after Fed Governor Lael Brainard's comments yesterday. Brainard, who is known for generally favoring low interest rates and loose Fed policy, said the Fed would need to raise interest rates aggressively and cut its balance sheet "at a rapid pace" to try to bring down inflation.
Minutes from the Fed's March meeting will come out at 2 p.m. ET today, potentially offering some clues regarding balance sheet reduction and future monetary policy.
In other news, Loop Capital initiated coverage of Upstart with a buy rating and a $140 price target, which implies roughly 49% upside from current levels. Loop attributed its bullish rating to Upstart's AI loan underwriting models performing better than traditional banks when it comes to loan approval and loss rates.
"The unique aspect of the Upstart platform is that it drives the consumer funnel and facilitates matches between borrowers and bank/loan buyers, moving the loans off its balance sheet to create one-of-a-kind asset light fintech business model," Loop said in its research note.
Having been heavily sold off in recent months, Upstart's stock price looks like a much more attractive entry point, with the company now trading at 41 times forward earnings and 5.6 times forward revenue.
But I still wouldn't call that cheap when you consider the pressure the consumer may face from inflation and rising interest rates. Upstart will also need to prove its AI underwriting models can still live up to expectations in what is expected to be a much more difficult economy. I'm still taking a cautious approach to the stock.