Upstart Stock Tanks 32% in 3 Months: Time to Hold or Book Loss?

Upstart Holdings (UPST) has underperformed, declining 32.1% in the last three months amid a broader tech sell-off, though its long-term AI-driven growth story remains intact. Despite trading at a premium with a forward P/S multiple of 3.83X, Upstart's Q1 2025 results showed strength with 92% loan automation and expansion into auto loans (up 42% Q/Q) and HELOCs (up 52% Q/Q), driving a 67% year-over-year revenue increase to $213 million and a non-GAAP EPS of $0.30, suggesting investors with a longer investment horizon should hold the stock.

Analysis

Upstart Holdings, Inc. (UPST) has experienced a significant stock price decline of 32.1% over the past three months, markedly underperforming the Zacks Financial - Miscellaneous Services industry's 5.2% slip. This downturn, which saw the stock fall 53% from its 52-week high, is primarily attributed to broader market headwinds, including a tech sell-off and concerns over a global economic slowdown, rather than company-specific issues. Despite this correction, Upstart's forward 12-month price-to-sales ratio stands at 3.83X, slightly above the industry average of 3.48X and representing a premium compared to peers like LendingClub (1.15X P/S) and Enova International (0.7X P/S), though below SoFi Technologies (4.13X P/S). The company's core strength lies in its AI-driven lending platform, which achieved 92% loan automation in the first quarter of 2025 and incorporates advanced models like Model 19 to refine risk assessment. This technological edge has contributed to an improved loan conversion rate, from 14% a year ago to 19% in the latest quarter. Financially, Upstart reported a 67% year-over-year revenue increase to $213 million and a non-GAAP EPS of $0.30 in its last reported quarter, a substantial improvement from a loss of $0.31 in the prior year's quarter. Expansion into new verticals is evident, with auto loan originations up 42% quarter-over-quarter, HELOCs up 52%, and small-dollar loans up 5%. Analyst consensus for 2025 projects robust 59% year-over-year revenue growth and an EPS of $1.46, indicating a positive outlook despite current market volatility and its Zacks Rank #3 (Hold) status.

Key Decisions for Investors

• Given Upstart's strong underlying technology, significant revenue growth, and expansion into new loan segments, investors with a long-term horizon may consider holding their positions despite recent stock underperformance and market volatility.
• Monitor the company's ability to sustain its high loan automation rates and conversion improvements, as these are key indicators of its AI model efficacy and competitive advantage.
• Be mindful of the stock's premium valuation relative to some peers and its sensitivity to broader market sentiment, particularly within the tech sector, which could lead to further price swings.
• Track progress in newer verticals like auto loans and HELOCs, as successful diversification beyond personal loans is crucial for long-term growth and de-risking the business model.