What happened
Upstart (UPST +0.63%) is pulling back this week. The fintech company's share price was down 19.9% from last week's market close as of 11:30 a.m. ET, according to data from S&P Global Market Intelligence.
Investors who were hoping that the Federal Reserve was done raising interest rates got some bad news this week. With inflation still running relatively hot, Federal Reserve chairman Jerome Powell confirmed that the central banking organization anticipates additional rate hikes this year. Expectations for rates to continue rising triggered substantial sell-offs for many companies with growth-dependent valuations, including Upstart.
NASDAQ: UPST
Key Data Points
So what
Upstart has posted explosive gains over the last month, and it's not surprising to see the stock give up some ground in light of an increasingly hawkish outlook on rates. Even with the sell-offs this week, the company's share price is still up roughly 130% year to date. The fintech has benefited from excitement surrounding artificial intelligence (AI), but ongoing macroeconomic pressures may be set to test just how smart the company's platform really is.
Now what
Upstart was built from the ground up around the premise that AI could be used to create better ways of assessing whether loan applicants were creditworthy. The company's platform has opened credit lines up to applicants who might not have been able to secure loans through other channels, but macroeconomic pressures have complicated the company's business model.
Between high inflation, rising interest rates, and the possibility of a recession on the horizon, performance has struggled -- and it remains to be seen how the company's AI-powered lending platform will fare if conditions worsen.
UPST PS Ratio (Forward) data by YCharts
Upstart is now valued at roughly 4.6 times this year's expected sales -- a highly growth-dependent valuation given that the company's revenue has actually been shrinking substantially lately.
Still down roughly 92% from its high, the stock has plenty of explosive potential, but it remains a high-risk investment.
