Upstart Holdings, Inc. UPST has been on a rollercoaster ride so far in 2025. Despite delivering back-to-back quarters of strong financial performance, the stock has fallen 10.4% year to date. Also, UPST has plunged nearly 43% from its 52-week high, reached on Feb. 13, following overwhelming fourth-quarter 2024 results reported on Feb. 11.

UPST YTD Price Return Performance

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The sharp sell-off stems from broader market volatility, driven by trade tensions and slowing economic growth, which have led to a widespread correction in high-growth stocks. However, this decline presents a compelling buying opportunity for Upstart stock, given the company’s strong fundamentals, artificial intelligence (AI)-driven credit innovation and an improving interest rate environment.

Upstart’s Q4 Results: A Game-Changing Performance

Upstart’s fourth-quarter 2024 earnings report showcased remarkable financial and operational growth. The company’s net revenues surged 56% year over year to $219 million, comfortably beating expectations. Revenues from fees — a core metric for Upstart — came in at $199 million, up 30% year over year and 19% sequentially. This growth was fueled by higher loan origination volumes and improved conversion rates, thanks to Upstart’s advanced AI models.

Loan origination volume soared 89% year over year and 31% sequentially, reaching 246,000 loan transactions. This included 162,000 new borrowers, highlighting Upstart’s expanding customer base. The average loan size rose to $8,580, up from $8,400 in the previous quarter, reflecting enhanced credit quality and borrower trust.

Moreover, Upstart posted adjusted EBITDA of $39 million, marking its second consecutive quarter of positive EBITDA. The company came remarkably close to achieving GAAP profitability, with a net loss of just $2.8 million, a significant improvement from the prior quarters.

Upstart’s fourth-quarter non-GAAP EPS of 29 cents depicts a robust improvement from the year-ago quarter’s loss of 11 cents and a loss of 6 cents in the previous quarter. Quarterly earnings also surpassed the Zacks Consensus Estimate of a loss of 5 cents.

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Upstart has an impressive history of beating earnings estimates. It surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 188%.

Upstart’s Model 19: A Major AI Breakthrough in Lending

Upstart’s biggest competitive advantage lies in its proprietary AI models, which continue to deliver superior accuracy in credit assessment. The introduction of Model 19 in the fourth quarter of 2024 is a game-changer. This model incorporates a new feature called the “payment transition model” (PTM), which evaluates intermediate delinquency states rather than just terminal loan outcomes. This enables Upstart to better assess risk and improve loan performance predictions, driving higher approval rates and lower default risks.

In addition, Upstart’s Model 18, launched earlier, introduced annual percentage rate (APR) as an input, significantly enhancing model accuracy. Combined, these innovations have led to loan approval rates nearly doubling in the fourth quarter — a testament to Upstart’s superior AI-driven underwriting capabilities. This technological edge positions the company to outpace traditional credit scoring models, boosting its growth potential.

Upstart’s Expanding Product Portfolio and Market Reach

Upstart’s strong fourth-quarter performance was not limited to personal loans. The company’s auto refinance and auto retail loan products saw origination volumes jump 60% sequentially, driven by improved underwriting models and rising conversion rates.

Upstart’s Home Equity Line of Credit (“HELOC”) product also grew 60% sequentially, bolstered by the automation of counteroffers and the launch of instant income verification powered by machine learning. Upstart’s HELOC is now available in 36 states, covering 60% of the U.S. population, with plans to expand further.

Upstart’s small-dollar relief loan segment was another bright spot, with origination volume growing 115% quarter over quarter. This product, targeting borrowers seeking quick access to smaller loans, offers attractive margins and further diversifies Upstart’s lending portfolio.

Interest Rate Cuts: A Strong Tailwind for Upstart

Upstart Holdings’ business model thrives in a low-interest-rate environment. By using AI to assess borrower creditworthiness, the company provides faster loan approvals, making it an attractive alternative to traditional lenders.

The Federal Reserve’s three rate cuts in 2024 have already fueled a recovery for Upstart, reversing some of the damage from previous rate hikes that had cut its annual revenue run rate in half. With more cuts expected in 2025, borrowing costs should decline further, stimulating loan demand and revenue growth.

The Zacks Consensus Estimate reflects this optimism, forecasting strong top and bottom-line growth in the coming years.

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If the Fed stays on track with additional cuts, Upstart’s AI-driven lending model could become even more attractive, unlocking significant upside potential.

AI-Powered Lending: Upstart’s Competitive Edge

Unlike traditional lenders like SoFi Technologies SOFI, LendingClub LC and Enova International ENVA, Upstart’s AI-driven model analyzes non-traditional data points, such as education and employment history, allowing it to approve loans for a broader range of borrowers while maintaining strong credit performance.

In the fourth quarter of 2024, 91% of Upstart’s loans were fully automated, showcasing the company’s ability to reduce costs and offer lower APRs — a game-changer in the lending industry. While legacy lenders remain reliant on outdated credit models, Upstart Holdings’ AI-driven approach gives it an undeniable edge.

Additionally, Upstart is expanding beyond personal loans into auto loans, home equity lines of credit and small-dollar relief loans, creating diverse revenue streams that strengthen its long-term potential.

Conclusion: Buy UPST Stock for Now

Upstart’s recent stock decline, driven by broader market volatility rather than company-specific weaknesses, presents a golden buying opportunity. The company’s AI-driven credit models, accelerating loan growth and expanding product portfolio position it for sustained success.

For long-term investors, the current dip offers an attractive entry point into a high-growth fintech player with a differentiated AI-based credit platform. As this Zacks Rank #2 (Buy) company continues to deliver strong financial performance and expand its market presence, the stock could be poised for substantial upside in the coming quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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