Why Upstart Holdings Stock Was Crashing This Week

Another brutal week for Upstart shareholders as the AI lending platform continues its downward spiral.

The Algorithmic Bloodbath

Upstart's AI-powered lending model faces its toughest test yet as rising interest rates expose flaws in its risk assessment framework. The platform that promised to revolutionize credit scoring now struggles with its own credibility.

Market Reality Bites

Traditional financial institutions are tightening belts while Upstart's algorithm keeps approving loans that increasingly look like digital IOUs. The company's proprietary technology—once its biggest selling point—now faces serious questions about its recession-proof capabilities.

Wall Street's Cold Shoulder

Analysts slash price targets as institutional investors flee what was once a fintech darling. The stock's performance makes even crypto volatility look predictable—and that's saying something in today's market.

Upstart's downturn reveals the harsh truth about fintech disruptors: when the economic tide goes out, everyone discovers who's been swimming without proper risk management shorts.

Coming up short

On Tuesday afternoon,published a fresh report analyzing current short interest trends in the consumer finance space. Upstart, which harnesses artificial intelligence (AI) to boost its credit analysis capabilities, was noted as having experienced one of the highest rises in that metric.

Image source: Getty Images.

According to reports Jefferies said this stood at just under 28% for the loan specialist. This was more than 600 basis points higher than the July figure.

Short interest is the portion of a company's outstanding share count that has been sold short by investors, but not yet covered (a short-seller is obliged to buy the amount of shares shorted to close their position).

Zooming out, Jefferies wrote that in general, short interest for U.S.-listed stocks has been rising over the past three months. It found the sector with the most significant rises was fintech, giving Upstart the dubious honor of having notably high short interest in the field that's most affected by it.

Warning light?

Short interest is worth keeping an eye on, as it tends to reflect investor sentiment on a business. Short-sellers, of course, are doing their thing because they believe a stock will decline in value; Upstart's nearly 30% short interest, then, indicates there are many market players convinced the company has some rough days ahead of it.