Investors who were able to identify what eventually became the trillion-dollar stocks of today, like Apple, Alphabet, or Nvidia, among others, could've seen their portfolios skyrocket in value. The challenge, however, is to spot the potential winners early on. 

A combination of significant growth prospects, a game-changing product or service offering, and a low starting valuation appear to be the key for a stock to hit the trillion-dollar club over time. Some investors think Upstart (UPST -0.34%), particularly with its focus on utilizing artificial intelligence (AI), can one day reach that mark. 

But how realistic is this scenario? Can Upstart, whose shares are down 92% from their peak, become a trillion-dollar stock by 2050? 

Huge potential 

Borrowers have long been assessed based on five factors put in place by the Fair Isaac FICO scoring method. Thinking that this system needed a major update, Upstart's founders created an AI platform that analyzes over 1,500 different variables to better gauge a customer's creditworthiness. The company's technology approves more borrowers at constant default rates and reduces default rates if approvals are kept constant. 

For Upstart's 100 lending partners, who pay the company fees when they approve loans, this product can improve their prospects because it vastly expands their potential customer bases. This can result in more loans being extended and greater sales growth. It seems like a win-win-win situation, in which Upstart, its lending partners, and consumers all benefit. 

Indeed, Upstart has proven before that the model is a success. In 2021, for example, it was able to increase revenue and net income 264% and 2,150%, respectively, year over year. Thinking of the bigger picture, the management team believes Upstart's opportunity is massive, particularly as it tries to further penetrate the markets for personal and auto loans, while entering the markets for home loans and small business loans. 

Many experts believe AI is here to stay and will become a bigger part of the global economy. The fact that Upstart has now been working with this technology for more than a decade increases the chances that it can be at the forefront of how AI and financial services can mix. 

Temper expectations 

There are definitely reasons to be optimistic about Upstart's long-term prospects, but I don't think investors should expect the fintech stock to become a trillion-dollar business by 2050, which would translate to a roughly 24% annualized return over the next 27 years (assuming the outstanding share count doesn't change). 

The obvious reason to be a bit more bearish is that Upstart might simply not survive as a functioning enterprise for that long. Never mind that the average business in the S&P 500 nowadays has a lifespan of under 20 years, compared to 60 years in the 1950s, but Upstart's unsound financial position today reduces the likelihood that it could even make it through future economic downturns. 

The business lost $109 million in 2022 and $157 million through the first six months of 2023. Revenue has tanked thanks to rising interest rates implemented by the Federal Reserve. This shows just how cyclical Upstart really is. It's highly sensitive to the unpredictability of the broader economy. Investors generally don't give these types of companies lofty valuation multiples. 

I also don't see the company becoming a trillion-dollar stock by 2050 because the big banks, like Bank of America, JPMorgan Chase, and Wells Fargo, still control a lot of the lending activity. Moreover, they are developing their own tech and AI tools that might end up completely eliminating the need for what Upstart provides. This means that the fintech company's true long-term potential and market opportunity could be seriously limited as these large financial institutions keep dominating lending markets, putting a cap on Upstart's revenue prospects. 

As a result, investors should look elsewhere to find a possible trillion-dollar stock.