Shares of the artificial intelligence lender Upstart (UPST 3.27%) fell roughly 9% today for no obvious reason.
While I didn't see any formal news reports, multiple people on Twitter said that analysts at Jefferies had cut their price target for Upstart from $158 to $85. Investors might have seen those tweets and reacted by selling the stock.
While other fintech stocks traded down today, Upstart trailed its peer group and most other financials as well. Trading below $80 per share, the stock is now down to some of its lowest levels since early 2021, when it was just beginning a run that would see it rise to close to $400 per share.
Since late last year, tech and fintech stocks, particularly those with huge valuations like Upstart, have been hammered as inflation has surged and the Federal Reserve has greatly changed its monetary outlook. The Fed now plans to raise its benchmark overnight lending rate several times this year and start to reduce its massive balance sheet, which would effectively pull liquidity out of the economy.
The big thing investors are watching with Upstart, which uses AI to originate personal and auto loans, is how effective its algorithms prove to be as things get economically more difficult for people. The cost of debt is going to be higher, inflation is making goods and services more expensive, and benefits from stimulus are fading. Experts also believe there is now a higher chance for a recession, which would potentially hurt consumer loan demand.
I continue to maintain a very cautious approach to Upstart and think the company needs to prove that its underwriting algorithms will hold up through the more difficult environment to come.