What happened

Artificial intelligence (AI) lending platform Upstart (UPST -1.97%) rallied on Thursday, up 2.6%, even as the broader markets were down more than 1%.

There wasn't much in the way of company-specific news today, but Upstart was tracking higher along with other smaller-cap fintech stocks today. That's an uncharacteristically positive move, given that fintech stocks have been among the worst hit this year. 

This may be somewhat of a rotation, as higher inflation along with resilient consumer spending data and employment could be bullish for companies that benefit from interest income -- as long as higher rates don't tip the economy into recession.

So what

Investors have been very concerned with Upstart this year amid rising interest rates and the potential for a recession. Upstart's lending models did begin to underperform earlier this year, as 2021 vintages failed to capture the abrupt rise in inflation. Moreover, rapidly rising interest rates caused Upstart's loan buyers to become cautious, forcing Upstart into retaining some loans on its balance sheet. That unwelcome change for investors has led to a shocking 83% decline in the stock this year.

However, Upstart's low stock price, combined with some other factors, could be why the stock is defying market gravity today. Even though the market is terrified of a recession amid rising interest rates, which would be bad for all lenders, today saw two data points that pointed to a resilient job market and growth in consumer spending.

Initial weekly jobless claims fell to 213,000 this week, below expectations and down from a revised 218,000 last week, and remain very low. Furthermore, U.S. retail sales remained resilient, with another report this morning showing that spending grew 0.3% after a 0.4% decline in July.

Thus, the recession that so many have feared doesn't seem to be here -- at least not yet.

In company-specific news, Upstart announced yesterday that it had won the National Association of Federally Insured Credit Unions (NAFCU) Services 2022 Innovation Award. The award is based on technology innovation and how it leads to credit union success.

Now what

While many have written off Upstart this year, value investors may want to give this company a second look. No doubt, there is a lot of uncertainty, both economically and regarding the company's business model.

Still, management has maintained that tweaks to its AI lending model this year to account for inflation are leading to better results, and management also increased transparency, releasing lots of data back in August.

Additionally, management said it was moving to acquire more long-term committed capital, so that it won't have to deal with funding constraints every time its loan-buyer partners get scared. However, there aren't a lot of details around that as of yet, as it will take a while for Upstart to put those buyers in place. Hopefully, yesterday's award will help credit unions and banks warm to the platform again.

Lending can be cyclical, and we are definitely going into a down cycle in 2022 if we aren't in one already; however, for investors looking to be greedy when others are fearful in anticipation of a turnaround, it may be time to put the "fallen angel" Upstart -- as well as other fintech stocks -- on your buy list.