AI-Powered Lending Giant Stumbles: Upstart's Growth Slowdown Sparks Debate
Upstart Holdings, the AI-driven lending pioneer, is facing a reality check as its stock continues to plummet. But here's where it gets controversial: despite boasting an 80% surge in loan originations last quarter, the company now predicts a significant slowdown in revenue growth, leaving Wall Street analysts scratching their heads. And this is the part most people miss: the discrepancy between Upstart's impressive loan growth and its more modest revenue projections raises questions about the company's underlying business model.
In a recent earnings report, Upstart's management forecast $288 million in revenue for the December quarter, a 32% increase year-over-year, but falling short of the $304 billion consensus estimate from FactSet. This would mark a substantial deceleration from the 71% growth rate achieved in the September quarter, which generated $277 billion in revenue. The disappointing guidance sent Upstart's shares tumbling 16% in after-hours trading, adding to the 25% year-to-date decline.
Is Upstart's AI Advantage Losing Its Edge?
CEO Dave Girouard remains confident, stating that the company's AI platform is 'performing exactly as designed,' adapting to shifting market conditions while delivering robust results. Upstart's loan originations grew at a faster pace than revenue, and the company reported a sixfold sequential increase in net income on a GAAP basis. However, the slowdown in revenue growth prompts a thought-provoking question: is Upstart's AI-driven underwriting model reaching its limits, or is this merely a temporary blip in an otherwise promising trajectory?
During the earnings call, Girouard emphasized the vast potential of AI in the credit industry, claiming that Upstart is uniquely positioned to lead this trillion-dollar market. He also highlighted the resilience of the company's underwriting models in the face of fluctuating industry conditions. Yet, the company's commentary on consumer credit trends presents a nuanced picture.
U-Shaped Recovery or K-Shaped Divide?
Upstart challenges the notion of a K-shaped economy, where upper-income consumers thrive while lower-income individuals struggle. According to the company, borrowers with sub-660 credit scores are faring relatively well compared to pre-COVID default trends, and those with 800-plus credit scores are 'doing very well.' However, default rates are significantly higher for consumers with credit scores between 720 and 750, suggesting a U-shaped recovery rather than a K-shaped divide. This interpretation contrasts with recent analyst claims that rival SoFi Technologies has benefited from a K-shaped economy.
As Upstart's stock continues to experience wild swings after earnings reports – with eight of the past ten post-earnings moves being double-digit – investors are left wondering: is this a buying opportunity or a sign of deeper troubles? What's your take on Upstart's growth prospects and the role of AI in lending? Do you agree with the company's U-shaped recovery narrative, or do you see a K-shaped divide emerging? Share your thoughts in the comments below and let's spark a debate!
