January had been a difficult month for stock investors, but the troubles with Upstart (NASDAQ:UPST) stock started well before technology stocks fell off a cliff.
Its decline started after its third-quarter earnings report came out.
You would think it was because the company missed earnings – but no. Upstart handily beat market expectations on revenue and earnings. The tumble was due to the disappointing forward guidance.
It seemed silly at the time but hindsight is 20-20. In reality, it was a sign that the appeal of tech stocks was on the wane for Wall Street. Despite this though, there remain plenty of reasons to like UPST stock.
A Closer Look at UPST Stock
Upstart has expanded its business relationship with Corning Credit Union (CCU). The latter will be using Upstart’s proprietary artificial intelligence lending platform to expand its personal loans business.
CCU had been an Upstart lending partner since September 2021.
I would assume that they were very impressed by what they’ve seen given the expansion of the business relationship. The way it would work is that loan applicants on Upstart.com that meet CCU’s credit policies receive specific and tailored loan offers. This allows CCU’s user experience to become more digital.
CCU is a $2.1 billion credit union with memberships from more than 1,700 employer groups, associations, and businesses. I believe this is a major win for Upstart and shows the exact type of institutions they should be targeting for partnerships.
This was only the latest partnership that Upstart was able to secure.
Early in 2022, Upstart announced a partnership with AgFed Credit Union (AgFed). This lender has over $300 million in assets and over 25,000 members.
Another recent win was the partnership with First National Bank of Omaha. Counting its affiliates the latter has more than $25 billion in assets and 5,000 employee associates.
These partnerships show that the growth profile of Upstart is still intact. More partnerships mean more revenue for the firm. Ultimately this should reflect in the performance of UPST stock.
Wins Show Accelerating Adoption
Credit unions are easy potential partners for the company. A large national bank may be willing to invest millions of dollars for an in-house proprietary AI solution, but smaller financial institutions simply may not have the resources.
Smaller institutions need these types of technologies in order to compete with institutions like Citi (NYSE:C) and Wells Fargo (NYSE:WFC). It makes sense for them to partner up with a company like Upstart.
I believe that this could just be the beginning for Upstart. In the technology industry, there is something called an innovation adoption curve. It classifies adopters into various categories. These categories are Innovators, Early Adoptors, Early Majority and Late Majority.
I believe for Upstart’s technology we are in the Early Adopters phase. There are a handful of credit unions and regional banks partnering up with the company. In a sense, they are trying out Upstart’s platform. However, once they see the benefit of the company’s technology, they become partners.
Investor Takeaway
The past few weeks had been rough for tech stocks, but historical evidence shows that the downturn won’t last forever. Now is the time to buy good companies selling at a discount. I believe UPST is one such stock.
It’s only a matter of time before AI-driven lending will be the default standard in the industry. This will put pressure on financial institutions to adapt or get left behind.
If that happens I wouldn’t be surprised to see the speed of partnership sign-ups to further accelerate. In other words adoption of Upstart’s technology could exponentially increase from here on out. This could play out very nicely for investors in UPST stock.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.
