It's been another wild ride of a year for Upstart Holdings (UPST 2.76%) stock. It's up more than 250% to close out the year, so if you bought at the right time, you may have made some major money. But "if" is the important word here, because there were huge highs and lows in 2023. You can't time the market, but if you had the luck to buy at the right time and stick it out, you came out ahead, at least this year.

What about next year? Is there going to be the same volatility that has plagued the stock almost from the beginning? If you're ahead now, should you pocket the change and breathe a sigh of relief? Or should you hold on for more fun? Let's see where Upstart stock could be at this time next year.

Don't ignore red flags

Upstart caught investor attention when it went public in December 2020 because it seemed like an exciting artificial intelligence (AI) disruptor in a huge industry highly in need of change. Creditors have been using the same traditional credit evaluation tools for decades, and these tools use narrow specifications to determine borrower risk. Upstart's platform, in contrast, operates a machine-learning platform rich with data points that can assess credit risk quickly and easily using a much broader array of criteria. Upstart says that has led to many more loan approvals without increased risk to the lender. Revenue was surging, and Upstart was profitable.

But investors may have underestimated the impact of higher  interest rate on Upstart's model. If Upstart had been around for longer, the impact might have been buffered. Given that Upstart is still young, and its AI platform is still learning, it hasn't been able to approve loans at the same rates as in the low-interest-rate environment before inflation set in, leading the Federal Reserve to hike interest rates. There are also fewer people looking to borrow at recent elevated interest rates, and loan volume has been declining. Revenue is also still decreasing, and Upstart's bottom line is in the negative.

Upstart still has a great model that has worked well in better economic times, and in general, there are more periods of economic expansion than slowdowns or recessions. Over a longer period, Upstart could prove itself. However, investors should be wary of continued loan volume decreases.

Growth drivers aplenty

There are reasons to envision Upstart rebounding in the coming year. It's still recruiting credit partners, having grown from 10 at the initial public offering to 100 at the end of the 2023 third quarter. It's also adding auto loan business partners. Expect those numbers to keep rising in a year from now.

It recently made the highly anticipated launch of a home equity product. It's already live in four states and is launching shortly in four more. Not only does this provide another market and important diversification, but management says home equity lines of credit (HELOC) work countercyclically to refinancing and provide a market to tap when interest rates are high.

It says it has an edge over existing creditors that provide HELOCs because it expects to get funds to approved borrowers within five days, whereas the industry average is a month. It also brings customers more fully into the Upstart ecosystem, where the platform can more effectively help them determine the right credit product for their individual needs at better rates, doing what Upstart does best. In one year, this product should be gaining momentum and adding value to the Upstart system.

Too hot to handle?

The main determining factor in how Upstart will perform this year is likely to be interest rates. The Fed said it may cut rates in 2024, since inflation has started to moderate. When it does, expect Upstart stock to jump.

However, investors need to see how Upstart's business reacts to the changes, which could still be slow. Don't expect rates to get to near zero, where they were when Upstart first came onto the investor scene, anytime soon. But at the end of 2024, they should be lower than they are today.

However, the nature of Upstart stock seems to be volatility, and high sensitivity to good and bad news. If you want to take the risk, keep the very long-term outlook in mind. It still seems that Upstart has a lot of potential, and Upstart stock is still 88% off its highs. At the current price, it trades at 7 times trailing 12-month sales, which is a tad expensive considering Upstart is still reporting declining sales and losses. Keep valuation in mind, because if it's too high, the stock may not have much upside potential. Look for a lower entry point if you're interested in buying.