Upstart Holdings (UPST -0.56%) stock jumped 26% in July, according to data provided by S&P Global Market Intelligence. The market is getting excited about it again as interest rates come down, and many financial stocks have been reporting robust growth.
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A better way to approve loans
Upstart is a credit evaluation platform that uses artificial intelligence (AI) to approve more loans without adding risk to the lender. In theory, that's a great premise for a company, and Upstart caught investor attention early in its journey when it was reporting triple-digit growth.
However, it's had a wild ride over the past few years as it cycles through different phases of the interest rate trends. Interest rates were near zero when it went public, leading to heightened lending activity and ease in approving loans. Rising interest rates put a stop to that, and revenue plummeted, along with the stock price.
It looks like it's finally stabilizing again as interest rates come down. However, it's in a much better place today having been through the challenge and incorporating those years of data into its algorithms. It's back in growth mode, and investors are getting excited again. If it can come through on its claims of helping banks and financial institutions approve more loans, which is one way they make money, it may have an edge over legacy credit evaluation platforms that it says deny access to funds to many people who aren't a credit risk.
Upstart released strong earnings results this week. Revenue more than doubled to $257 million in the 2025 second quarter, and transaction volume was up 159%. Operating income was $4.5 million, up from a $55.5 million loss last year, and net income was $5.6 million, from a $54.5 million loss last year.
A stock that looks compelling today
When Upstart was doing well in the past, its valuation became astronomical. At the current price, Upstart stock trades at a forward one-year P/E ratio of 27, which is reasonable considering its performance and opportunities. Upstart stock fell after the report, probably because loans held on the company's balance sheet are on the rise. That's been a red flag for investors in the past, and the market didn't take this well.
Upstart stock may not be the best candidate for the risk-averse investor, but it may be past rock bottom, and it has excellent long-term potential.
