The S&P 500 (^GSPC +0.43%) has added 18% year to date amid excitement about the artificial intelligence boom. But not every AI stock has done well. Upstart Holdings (UPST +3.14%) and Atlassian (TEAM +1.57%) have declined 22% and 34%, respectively. But certain Wall Street analysts expect the stocks to rebound in a big way next year:
- Peter Christiansen at Citigroup has set Upstart with a target price of $80 per share. That implies 70% upside from its current share price of $47.
- Keith Weiss at Morgan Stanley has set Atlassian with a target price of $320 per share. That implies 100% upside from its current share price of $160.
The target prices above are the highest on Wall Street. But most analysts view the stocks as undervalued. Upstart's median target price of $56 per share implies 17% upside from its current price. And Atlassian's median target price of $230 per share implies 44% upside from its current price.
Here's what investors should know.
Images source: Getty Images.
1. Upstart Holdings: 70% upside by highest target price on Wall Street
Upstart is an artificial intelligence (AI) lending platform that helps banks and credit unions better assess credit risk. Most lenders currently use simple rules-based systems centered around FICO Scores that cover a limited number of variables, but Upstart analyzes more than 2,500 variables, and its machine learning models improve each time a borrower makes or misses a payment.
NASDAQ: UPST
Key Data Points
Upstart's AI lending platform incorporates models that support customer acquisition, fraud detection, and default forecasting, and it automates the underwriting process in most cases. In turn, lending partners profit from approving more borrowers at lower interest rates. The company says loans originated on its platform since Q3 2023 are on pace to outpace the yield on two-year Treasury bonds by 7.4 percentage points.
Upstart reported solid third-quarter financial results. Total revenue increased 71% to $277 million, and non-GAAP net income was $0.52 per diluted share, up from a loss of $0.06 per diluted share last year. Newer lending products (auto, home, and small-dollar loans) accounted for nearly 12% of originations, up from roughly 10% last quarter.
Looking ahead, Wall Street expects Upstart's adjusted earnings to grow at 51% annually through 2026. That makes the current valuation of 33 times earnings look very reasonable. Investors should feel comfortable buying a small position in this overlooked stock today.
2. Atlassian: 100% upside implied by the highest target price on Wall Street
Atlassian develops work management and service management software. The company is best known for Jira, a platform that helps teams plan, track, and collaborate on projects. Jira is the industry standard among software developers, but the product has also gained traction with non-technical departments like marketing, human resources, and finance.
NASDAQ: TEAM
Key Data Points
Consultancy Gartner recently ranked Atlassian as a leader in work management software for development and operations teams, as well as marketing teams. No other company has been recognized as a leader in both categories. That is an important competitive advantage because it means Atlassian can land new customers through a technical or non-technical department, then expand across the organization.
Atlassian has also introduced AI agents for technical and non-technical teams. Rovo Dev helps developers plan, generate, and review code, while the standard version of Rovo helps other users surface insights and automate workflows in software products like Jira. Morgan Stanley analysts see Atlassian as one of the companies best position to benefit from AI agents.
Atlassian reported solid financial results in the first quarter of fiscal 2025, which ended in September. Revenue increased 21% to $1.4 billion and non-GAAP earnings rose 35% to $1.04 per diluted share. CEO Michael Cannon-Brookes said the number of clients using AI features increased 50% from the previous quarter.
Wall Street expects Atlassian's adjusted earnings to increase at 22% annually through the fiscal year ending in June 2027. That makes the current valuation of 41 times earnings look reasonable, especially when Atlassian beat the consensus earnings estimate by an average of 16% in the last six quarters. I think the market is overlooking this stock, creating an opportunity for patient investors.
