What happened

Shares of the artificial intelligence-based lender Upstart (UPST 2.21%) traded more than 7% lower as of 10:03 a.m. ET today after the company reported second-quarter earnings results following yesterday's market close.

So what

In the second quarter, Upstart reported a net loss of $0.36 per share on total revenue of $228 million. The fintech company told investors in July to expect these numbers, so the market was somewhat prepared, but the results are way below analyst estimates prior to the warning.

"This quarter's results are disappointing and reflect a difficult macroeconomic environment that led to funding constraints in our marketplace," Upstart's CEO, Dave Girouard, said in an earnings statement.

He added: "In response we're taking the necessary actions to build a more resilient and committed funding model over time. We're confident that our AI-based risk model is more accurate than ever, and provides the opportunity for long-term, sustainable growth."

Furthermore, Upstart also guided for third-quarter revenue to come in soft at $170 million and for the company to report a loss of roughly $42 million.

Upstart originates loans through its platform and sells the bulk of them to institutional investors, but these investors are purchasing fewer loans right now due to concerns over a recession and to higher funding costs resulting from higher interest rates.

Upstart also said it is planning to put loans on its balance sheet in the near term due to some of these funding issues, which investors have not liked in the past.

Now what

I'm not seeing much for investors to cheer about right now. Upstart remains too reliant on the capital markets, which have really dried up in the current rate environment. The outlook for the rest of the year does not look good, and it is going to take time for the company to build out this new funding model. I'm steering clear of the stock.