What happened
Upstart Holdings (UPST 2.84%) is continuing its resurgence, as its stock price has jumped 17.5% for the week as of Friday morning at 9:30 a.m. ET, according to S&P Global Market Intelligence. Upstart was trading at about $38 per share at the market open on Friday, up a whopping 185% year to date.
The market is up this week, too, as the S&P 500 has gained 3%, the Dow Jones Industrial Average has climbed 1.6%, and the Nasdaq Composite has jumped 3.9% this week as of Friday at the opening bell.
So what
Upstart Holdings, a fintech that uses artificial intelligence (AI) to process loans, has had quite a volatile past few years. It went public in 2021, and the stock soared some 143%, but then it crashed in 2022 along with other overheated technology stocks, dropping 91%.
This year, it bounced back and is up some 185% through June 15, as technology stocks have rebounded.
NASDAQ: UPST
Key Data Points
The primary catalyst this week was no doubt the Federal Reserve, which decided to pause any further interest rate hikes. This is the first time since March of 2022 that the Fed has not raised rates to fight runaway inflation. That's because inflation has gradually come down, and in May, it fell to 4%, down roughly half from where it was a year ago.
That doesn't mean this is the end of the rate hikes, as the Fed will continue to monitor consumer and producer prices, but it provided a temporary boost for a company like Upstart, which relies on loan volumes to generate fees. When interest rates are lower and the economy is strong, there are more loans, thus more revenue.
And because it partners with banks to provide most of its loans, it doesn't get the benefit of higher interest income during times of high interest rates -- as traditional banks have over the past year or so.
Now what
Upstart may have also gotten a boost when an analyst at BTIG initiated coverage of Upstart with a buy rating and a price target of $42. BTIG analyst Lance Jessurun said he expects Upstart will see an increase in funding partnerships, with better incentives, as lending activity starts to pick up.
In the second quarter, Upstart expects revenue of $135 million, up from $103 million in the first quarter, but that's well below the $310 million in revenue it got in Q1 of 2022. Most of that, $130 million, is anticipated to come from fees. It also expects a $40 million net loss, which is better than the $129 million net loss in Q1.
The analyst projection aside, I think there is too much economic uncertainty to warrant a buy for Upstart right now, especially as it has already had a big run-up this year. Tune in when Q2 earnings are released.
