Upstart (NASDAQ:UPST) provides a platform that uses artificial intelligence (AI) to streamline and (hopefully) improve the lending process. Some folks might want to buy UPST stock because they envision a robust future for this type of technology. However, investing in Upstart is something that should be done in moderation, if at all, in 2023.
To put it mildly, one firm isn’t very fond of Upstart and issued a lengthy warning about the company. You can decide for yourself whether the criticism associated with Upstart is fair or unfair. However, prudent investors should listen to both sides of the story before making any financial decisions.
UPST Stock Is Very Interest-Rate-Sensitive
Surely, it’s not mere happenstance that UPST stock jumped from $30 to $72 this past summer and then coughed up all of those gains. The stock’s price is, to a certain extent, a function of the Federal Reserve’s interest rate policy.
After all, Upstart’s business model isn’t just about AI technology. It’s also associated with banks and lending. So, if you expect the Federal Reserve to continue hiking interest rates, which could inhibit borrowing and lending activity, then you might choose not to invest in Upstart.
Despite these concerns, it’s encouraging to see a number of credit unions partnering with Upstart. For example, Naveo Credit Union in Massachusetts chose Upstart to provide AI lending functionalities.
Other regional banks that chose to work with Upstart include Idaho Central Credit Union as well as New York-based Heritage Financial Credit Union. So, in that regard, it could be claimed that Upstart is growing and gaining trust among certain banks.
A Short Report Slams Upstart
If a scathing short report published by Bleecker Street Research is to be believed, interest rate fluctuations are only one of many problems that could sink UPST stock. So, let’s delve into some of the details, and you can form your own conclusions.
Bleecker Street acknowledged that it had a short position in Upstart shares and warned that “this AI no documentation loan marketplace is in big trouble.” Presumably referring to the stock, Bleecker Street stated, “We think this could be a zero.”
In the firm’s short report, Bleecker Street suggested that Upstart’s two biggest customers, Cross River Bank and FinWise Bank, had major regulatory/legal problems. Those two “janky banks,” Bleecker Street reported, represented 73% of Upstart’s revenue.
Furthermore, the firm called Upstart’s reporting transparency into question. Specifically, Bleecker Street alleged that Upstart’s “securitizations are mostly or entirely private” and that its “reporting is comically thin.”
Overall, the short report cast doubt on the viability of Upstart’s business model. Bleecker Street declared that Upstart “has no marketing advantage, no production advantage, and no distribution advantage.” However, ultimately, it’s up to you to decide how much consideration you’ll give to the claims made in Bleecker Street’s report.
UPST Stock: The Turnaround Prospects Are Unclear
Upstart’s loyal investors were probably frustrated when the stock popped and dropped earlier this year. Now, in 2023’s fourth quarter, Upstart’s shareholders will need to keep an eye on the fluctuations in interest rate policy.
Meanwhile, some regional banks seem to trust Upstart, but Bleeker Street Research’s short report is quite worrisome. If you don’t mind indulging in a little bit of gambling, you might choose to give UPST stock a try. Just keep your position size tiny and have an exit plan in case the trade goes against you.
On the date of publication, David Moadel 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.
