Upstart (UPST 5.41%) believes the traditional way banks assess the creditworthiness of potential borrowers is outdated. Financial institutions often rely on Fair Isaac's FICO credit scoring system, which analyzes a handful of metrics like a person's repayment history and existing debt, but Upstart asserts that it doesn't paint a detailed picture of someone's ability to pay back a loan. Upstart developed an algorithm powered by artificial intelligence (AI) that assesses over 2,500 data points on a potential borrower to develop what the company considers a more accurate understanding of a person's creditworthiness.
For the most part, Upstart doesn't lend any money itself. Rather, it originates loans on behalf of its partners, which include banks and other financial institutions, and collects a fee for the service. The service has been doing well lately, and Upstart's revenue doubled during the second quarter of 2025 (ended June 30), with the dollar value of its loan originations soaring to a three-year high.
Upstart's stock trades at around $63 as of this writing (Aug. 12), which is about 84% below its 2021 record high. Here's why Upstart stock could be one of the smartest buys for under $100 right now.
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A potential $25 trillion opportunity
Speed is another important benefit of Upstart's AI-powered approach. It would take a human assessor days or even weeks to manually analyze as much data as Upstart's credit models. AI helped Upstart process a whopping 92% of the company's Q2 loan approvals instantly and automatically. This creates a fantastic customer experience, and banks that don't use AI might soon find themselves left behind.
Upstart specializes in unsecured personal loans, automotive loans, and home equity lines of credit (HELOCs). It originated 372,599 loans across all segments during Q2, which was a whopping 159% increase from the year-ago period. The dollar value of those originations was $2.8 billion, which was a three-year high.
Loan demand collapsed after 2022 because the U.S. Federal Reserve drastically raised interest rates to battle a surge in inflation. But after three rate cuts at the end of 2024 and more expected before 2025 is over, consumers' appetite for credit appears to be coming back with a vengeance. Upstart said drastic improvements to its AI models also boosted conversion rates during Q2, which turned more applicants into approved borrowers.
Longer term, Upstart CEO Dave Girouard hinted at a potential expansion into industrial loans, small business loans, and credit cards during the company's "AI Day 2025" earlier this year. He said $25 trillion worth of loans are originated annually across all categories, which puts $1 trillion in fee revenue up for grabs every year. Girouard said he believes all human assessment methods will be replaced by AI over the next decade, and since Upstart is leading that shift, it could capture a dominant market share.
Upstart is on track to deliver over $1 billion in revenue this year
The surge in Upstart's originations during Q2 resulted in $257 million in revenue, which crushed management's forecast of $225 million. It represented a year-over-year increase of 106%, which marked the fourth consecutive quarter of acceleration in revenue growth.
The strong result prompted management to increase its full-year revenue guidance for 2025 by $45 million, to $1.055 billion. If that forecast proves to be accurate, it will be the first time that Upstart's annual revenue crosses the billion-dollar milestone.
But it gets better, because Upstart also generated $6 million in net income on a GAAP (generally accepted accounting principles) basis during Q2, marking the company's first profitable quarter since Q2 2022. Upstart is now on track for its first profitable year since 2021, with management forecasting around $35 million in net income for the whole of 2025.
Why Upstart stock could be a smart buy right now
When Upstart stock peaked in 2021, its price-to-sales (P/S) ratio soared to a completely unsustainable level of around 50. But the decline in the stock since then, combined with the company's revenue growth, has pushed its P/S ratio down to a more reasonable 7.7.
That's a discount to its average of 8.8 dating back to when the stock went public in 2020. But Upstart looks even more attractive if we value it based on management's 2025 revenue forecast of $1.055 billion, which places its stock at a forward P/S ratio of just 6.2:
Data by YCharts.
That means Upstart stock would have to climb by 42% in the remainder of this year just to trade in line with its long-term average P/S ratio of 8.8. Considering the company's accelerating revenue growth and the prospect of further interest rate cuts, it's possible the stock delivers an even stronger performance before 2025 is over.
But the greatest rewards might come over the long term, as Upstart expands into new loan markets to capture more of the $25 trillion in global originations each year.
