Upstart Stock in 5 Years: AI Lending Disruptor or Another Fintech Flameout?
Wall Street's betting big on algorithms eating traditional lending's lunch—but can Upstart's AI-powered model actually deliver sustainable growth, or is this just another fintech fantasy destined for the graveyard of overhyped IPOs?
The Core Thesis: Data Versus Dogma
Upstart's entire premise hinges on one brutal assumption: that machine learning can assess credit risk better than decades-old FICO models. Early data suggests they're onto something—approval rates climb while loss rates stay contained. But five years is an eternity in tech, and banking regulators move at glacial speeds.
Market Forces: Expansion or Exhaustion?
Auto loans and personal lending are just beachheads. The real growth—if it comes—lies in mortgage and small business lending, two sectors ripe for disruption but choked with regulatory landmines. Success means capturing even single-digit percentages of these trillion-dollar markets. Failure means getting stuck in niche purgatory.
The Bear Case: When the Music Stops
Recession scars run deep. Upstart's model remains largely untested through a full-blown economic downturn. If loss rates spike beyond projections, bank partners will flee faster than hedge funds from a sinking meme stock. And let's be real—since when has Wall Street ever overestimated risk in the pursuit of short-term gains?
The Bottom Line: Binary Outcomes Ahead
This isn't some steady-eddie dividend stock. Five years out, Upstart either becomes the default API for consumer credit in America—or joins the growing pile of fintechs that promised revolution but delivered mediocre returns. The company's betting everything that banks would rather eat their young than continue using outdated risk models. They might be right. Or they might learn why nobody ever went broke underestimating the financial industry's appetite for innovation.
Image source: Getty Images.
That was a wild five-year ride, but investors who stuck with Upstart through those volatile swings are still sitting on some big gains. Will Upstart's stock keep rising and set new all-time highs over the next five years?
How fast is Upstart growing?
Upstart's AI-powered platform approves loans for banks, credit unions, and auto dealerships. Instead of analyzing traditional information like an applicant's FICO score, credit history, or annual income, it gathers non-traditional data points -- including previous jobs, standardized test scores, and GPAs -- to approve a wider range of loans for younger and lower-income applicants with limited credit histories. It generates most of its revenue by charging its lending partners referral fees.
Upstart doesn't offer any of its own loans. It merely acts as an AI-powered middleman that helps its lending partners gain more customers.
Upstart's growth can be gauged through its originated loans, conversion rate (the percentage of inquiries leading to approved loans), and contribution margin (the percentage of its fees it retains as revenue). Here's how its business performed since its public debut.
|
Originated loans growth (YOY) |
40% |
338% |
(5%) |
(59%) |
28% |
133% |
|
Conversion rate |
15% |
24% |
14% |
10% |
16.5% |
21.7% |
|
Contribution margin |
46% |
50% |
49% |
63% |
60% |
59% |
|
Revenue growth (YOY) |
42% |
264% |
(1%) |
(39%) |
24% |
84% |
Data source: Upstart. YOY = Year over year.
In 2021, Upstart's growth accelerated as it more than quadrupled its number of banking partners from the previous year while expanding its auto loans segment. Low interest rates, a surge in auto sales after pandemic lockdowns, and the AI-driven automation of its approvals amplified that growth.
But in 2022 and 2023, its growth stalled as rising interest rates curbed the market's demand for new loans. Many of its banking partners also cautiously reined in their loans to deal with the more challenging macro environment. As its top-line growth slowed, it focused on expanding its contribution margins by automating more of its loans, bundling them together, and increasing its mix of "super prime" borrowers who delivered higher take rates than its riskier borrowers.
In 2024 and 2025, Upstart's growth accelerated again as interest rates declined. It continued to expand its smaller auto lending and home equity lines of credit (HELOC) segments, automated more of its loans, and gained even more banking partners.
What will happen to Upstart over the next five years?
From 2024 to 2027, analysts expect Upstart's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at a CAGR of 36% and 245%, respectively. It still looks reasonably valued at 32 times this year's adjusted EBITDA. We should take those estimates with a grain of salt, but they're realistic if inflation cools off, interest rates decline, and the geopolitical tensions subside.
Assuming Upstart hits those targets, grows its adjusted EBITDA at a CAGR of 20% from 2027 to 2030, and trades at roughly 30 times its forward adjusted EBITDA, its stock could rise about 270% to the low $230s over the next five years. That WOULD be an impressive market-beating gain, but it probably won't come anywhere close to surpassing its previous all-time high -- which had been inflated by the buying frenzy in meme stocks in 2021. If you expect Upstart to maintain its early-mover advantage in its nascent market for AI-powered loan approvals, then it could still be a great stock to buy and hold for at least the next few years.
