Since its initial public offering (IPO) in 2021, Upstart (UPST 0.55%) has taken investors on a wild ride. At its peak, the stock skyrocketed to $400 per share. Fast forward to today. The stock is down 84% from that peak but has also bounced 441% from its 2023 low.
Upstart grabbed the spotlight with its innovative artificial intelligence (AI)-driven lending model. In recent years, its stock has experienced a resurgence as it secures funding and partners gain confidence in its lending models.
Could investing in Upstart today set you on the path to becoming a millionaire? Below, I'll delve into the details and examine the stock's long-term potential.
NASDAQ: UPST
Key Data Points
Upstart's AI-lending models show promise
Upstart operates an artificial intelligence-powered lending marketplace connecting hundreds of banks and credit unions with customers. Its business revolves around using AI to underwrite consumer credit and does so in a digital-first way. The company believes its models better identify risk and make lending available to more people when compared to the traditional FICO scoring system, created by Fair Isaac Corporation in 1989.
The fintech utilizes AI to assess the risk associated with its personal loans. Its models predict income, identity fraud, and other key metrics for lending. Upstart claims that its model results in a higher approval rate and lower interest rates for borrowers. According to one of its internal studies, it approved 101% more borrowers and yielded a 38% lower average annual percentage rate (APR) on approved loans.
Upstart focuses on a seamless experience, with 92% of Upstart-powered loans being fully automated -- which means zero human involvement from Upstart's side. Its high automation reduces origination costs, improves conversion rates, and can help the company scale up to meet demand. In the second quarter, the company said that conversion rates increased from 15% a year ago to 24%, thanks to ongoing improvements to its model.
Image source: Getty Images.
Here's what will drive Upstart's future growth
Upstart sees huge growth potential in all its product areas, including its core personal loan product, where it holds a single-digit market share. It believes its business model has significant operating leverage, allowing much of its top-line growth to translate efficiently to the bottom line, as it aims for fast, profitable growth.
It also sees significant long-term growth opportunities for its AI-lending model in different credit markets to expand its reach. It believes that many categories, like home and automotive lending, are ripe for AI disruption. Adding these markets significantly expands Upstart's total addressable market.
The second quarter was excellent for the company, as revenue grew 102% year over year and it achieved GAAP profitability a quarter ahead of schedule. Originations reached $2.8 billion, the highest volume in three years. Automotive lending grew 87% from the previous quarter, driven by model updates and pricing improvements.
Home equity lines of credit (HELOCs) are another avenue for growth. Launched in 2023, Upstart's HELOC originations quadrupled between the first quarter and fourth quarter of last year. In the first quarter, HELOC originations grew 52% quarter on quarter and more than 6x, compared to a year prior. Stellar growth continued into the second quarter, with originations on these loans up 66% sequentially.
Is Upstart a millionaire-maker stock?
To be a millionaire maker, Upstart would need to continue growing its presence in the lending space and capture a larger share of the massive HELOC market. The stock would still need to deliver stellar returns of 25% annually over the next two decades to turn an initial $10,000 investment into $1 million.
It's possible that Upstart could be a millionaire maker with enough capital and time. Its business is coming along, demand is steady, and investors are growing more confident in its AI-powered loans, as evidenced by their ongoing investments.
That said, you don't want to focus too much on any single stock to build wealth. Instead, what matters most for reaching millionaire status is consistently saving and investing in stocks for the long run, and Upstart can be a small piece of that puzzle.
