Upstart Stock (NASDAQ:UPST)
Despite a pessimistic recommendation from Wall Street, shares of artificial intelligence loan business Upstart (NASDAQ:UPST) gained today, along with other fintech and tech equities. As of 10:40 AM ET, Upstart stock price has risen by 7.8%.
What is the Reason?
This morning’s tech stock rally came as investors expected a slew of essential earnings reports that would provide light on the industry’s performance in the current high-interest-rate, high-inflation climate.
However, the corporation also faced criticism from Wall Street. With an underperforming rating and $17 price target, Mizuho Financial Group analyst Dan Dolev began coverage on Upstart stock, indicating a downside from the company’s current stock price.
To better underwrite loans to a wide range of borrowers, including those with lower credit scores in the subprime market, Upstart has created a unique credit underwriting algorithm. A crucial component of Upstart’s business strategy is the funding and purchase of loans, which exploded in 2020 and 2021 but has crashed this year as credit quality has worsened. Institutional investors have been less inclined to do so.
Dolev predicted “greater pain in future quarters” due to the potential impact of rising interest rates and high inflation on delinquencies and the availability of capital. Earlier this quarter, Upstart’s management indicated that the company could be compelled to start carrying the debts it creates on its balance sheet. Investors responded quite negatively when the corporation did this in the first quarter of this year.
What’s Next?
Upstart stock may not have seen its worst yet, and I agree with Dolev that this is a valid concern. The Federal Reserve raised its key overnight lending rate by 0.75 percentage points in July and September of the third quarter.
My guess is that Upstart will still have difficulties securing finance since these rate increases will profoundly affect the cost of capital for institutional investors. I will not risk any money on the Upstart stock until the fog lifts.
Featured Image- Megapixl @ Rafaelhenriquepress
Author Shariq Khan 
