Upstart Stock (NASDAQ:UPST)
As of 1:44 PM ET on Thursday, Upstart stock, a lending platform powered by artificial intelligence (AI), rose 5.3%.
The fintech company Upstart (NASDAQ:UPST) has plunged 95% from its all-time highs achieved last year, but investors are looking for a rebound. Therefore the Upstart stock is now in rally mode. Today’s positive mood is likely due in part to the credit union’s announcement of deeper cooperation with them.
What’s the Reason?
Since Upstart (NASDAQ:UPST) is a financially vulnerable company, this week’s economic data indicating a possible moderation in inflation was likely welcomed by investors. The recent housing statistics revealed a modest decline in house prices in August, indicating that shelter inflation, a significant component of the core consumer price index (CPI), may reduce in the future. The JOLTS report released Tuesday revealed a larger-than-anticipated drop of 1.1 million job opportunities, further pointing to a cooling labor market.
Though a slowing employment market would ordinarily be cause for concern, inflation that is out of control now poses a more significant threat to the economy. Therefore, the Federal Reserve hopes for a slowdown in the labor and housing markets. A faster reduction of inflation will allow the Federal Reserve to ease monetary policy.
Upstart (NASDAQ:UPST) has built more robust bonds with its secondary market loan purchasers over the last day. Considering that a significant cause of Upstart’s difficulties this year has been the withdrawal of its loan financing partners as interest rates climbed, this is also encouraging news. As a result, Upstart, which had envisioned itself as a “pure platform,” had to restrict expansion and start keeping more loans on its balance sheet, which went against the company’s guiding principles. After a backlash from Upstart stock investors, Upstart’s management announced it would stop using the balance sheet. However, on the results call for the second quarter, they changed their tune, saying they would sometimes utilize their cash reserves to hold loans.
The firm and the Atlantic Federal Credit Union announced their partnership on Wednesday. Forging a tighter collaboration around personal lending, the AFCU has joined the Upstart Referral Network after being a partner since September 2021 as a loan buyer. An applicant who visits Upstart for a loan and satisfies the AFCU’s lending conditions will now be sent to an AFCU-branded experience to finish the application and get the loan.
If this is the case, the Upstart (NASDAQ:UPST) platform might assist its partner banks and credit unions acquire customers more directly, strengthening their connection and potentially resulting in a more significant fee for Upstart. Upstart’s issues this year can be traced back to its connections with its financing partners. Therefore the news of the new alliance is encouraging.
What Should You Do Now?
Although there is much unpredictability around the economy and Upstart’s business strategy, the Upstart stock’s steep decline makes any good development particularly exciting.
I’m still not entirely convinced. Several of Upstart’s fintech competitors have opted to gain a banking license to acquire their low-cost deposits, suggesting that this business model is the best option for the sector as a whole. Given that its business model is geared at borrowers who may be disregarded by more established, regulated financial institutions, Upstart stock is rejecting this strategy. But it leaves Upstart vulnerable to financial issues anytime the economy experiences a downturn.
With management going back and forth this year on whether or not to retain loans, it would suggest that Upstart’s tech-focused staff is still experimenting with several business models to find the most sustainable one. Until management settles on a more precise strategic direction, this cloud of doubt will continue to cast a shadow over the Upstart stock price.
Featured Image- Pexels @ Michelangelo Buonarroti
Author Shariq Khan 
