Upstart Stock Is Getting a Dose of Reality With Another Downgrade

UPST stock - Upstart Stock Is Getting a Dose of Reality With Another Downgrade

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Investors in Upstart Holdings (NASDAQ:UPST) are increasingly curious to know where the stock’s price is headed. But the market is providing plenty of mixed messages. There’s plenty of upside based on the average consensus price target of $188. Given that shares currently trade for less than $80 the narrative is to simply buy, be patient, and wait for the inevitable returns. 

That’s easier said than done. Especially when shares drop by 9% as they did on April 20. 

The reason that Upstart Holdings is again faltering is that Jefferies analyst John Hecht lowered his price from $158 to $85 for UPST stock. That news was behind a paywall so I don’t have access to the precise logic that led Hecht to slash the price.

However, we can logically guess that it builds upon the reasoning that led Wedbush analyst David Chiaverini to lower his price for UPST stock from $110 to $75 weeks earlier. That news sent Upstart Holdings shares tumbling by more than 10%.

Analysts are arguing that the firm’s business model hasn’t been tested in a difficult period yet. The company’s AI platform aggregates consumer demand for loans and sells that to its banking partners. The fear is that delinquency trends could be worsening.

That suggests that banks will be much more reluctant to buy loans from Upstart Holdings.  The company also relies on third-party funding which Chiaverini notes as increasingly risky during prolonged market turmoil leading to recession. 

AI underwriting models have not fully panned out as many had expected. Zillow’s (NASDAQ:Z) AI debacle was among the worst yet. It led to a $304 million operating loss and cost 2,000 people their jobs. AI might not be the panacea many expected. At the very least, the kinks still have to be worked out and perfected. 

This all suggests that those lofty target prices could come down as more and more analysts change their tune. 

On the date of publication, Alex Sirois 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 Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

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