The AI lending giant Upstart Holdings, Inc. (NASDAQ: UPST) is up more than 150% since last month due to a short squeeze after sharing positive Q1 earnings. Considering the improving macro environment, UPST stock can continue squeezing especially with the Fed potentially pausing rate hikes this year. With the FOMC meeting scheduled for June 13th and 14th, UPST stock could soar on a dovish pause.
UPST Stock News
Rate Hike Pause
Since UPST is an AI fintech company, it is well-positioned to benefit from both the increasing interest the AI sector has been seeing recently and the expectations that the Fed will pause rate hikes in June as a hike pause can help UPST in more than one way.
For starters, demand for UPST loans may increase as people and institutions become more willing to take loans as interest rates stabilize and the macroeconomic climate improves. Secondly, because the interest rate appears to be approaching its peak, financial institutions might be more willing to buy loans held by UPST.
On that note, Castlelake has previously committed to purchasing up to $4 billion in consumer installment loans from Upstart, which indicates Castlelake’s confidence in UPST and its belief in the potential of the consumer credit and specialty finance sector.
The loan purchase also addresses UPST’s concerns about keeping loans on its balance sheet and demonstrates that UPST can sell more loans in the future.
Disturbing The Market Through AI
UPST’s main selling point is its AI loan assessment tool, which the company claims is significantly more accurate than traditional lending models like Fair Isaac Corporation’s (NYSE: FICO). That may be true since UPST’s model outperformed FICO’s model in categorizing loans into different risk grades by a fair margin.
Furthermore, 84% of UPST’s loans are automated with no human intervention whatsoever which is the highest in the industry. UPST is also retaining an outstanding 83 net promoter score (NPS) with brands like Apple (NASDAQ: AAPL) that are known for their loyal customers only standing between 61 and 68 between different products.
If UPST can prove to the banking sector that its loan assessment model is better than other models like FICO’s that might see UPST’s current PPS as a bargain.
Short Data
While short interest has decreased for UPST stock by almost 10% since February 2022, UPST stock is still seeing a high short interest rate despite the positive Q1 earnings and selling $4 billion of its loans to Castlelake in May.
UPST stock is highly shorted with a short interest of 35.4% and 35.6% of its float on loan. At the same time, utilization rate remains high at 100% which may see UPST continue soaring if the Fed pauses rate hikes in June since short sellers might be forced to cover their positions.
UPST Stock Financials
In its Q1 2023 report, UPST’s assets decreased 5% QoQ from $1.9 billion to $1.8 billion, and its cash and cash equivalents decreased 8% QoQ from $422 million to $387 million. UPST’s total liabilities decreased by 5% QoQ from $1.26 billion to $1.19 billion.
Revenue also decreased 60% YoY from $313 million to $117 million. Operating costs decreased almost 15% from $275 million to $234 million, which contributed to the operating loss increase of 485% YoY from $34 million in operating income to $131 million in operating loss. As a result, UPST reported a net loss of $129 million – a 500% increase YoY.
Media Sentiment
@theresa_perrin is bullish that a rate hike pause can benefit companies like UPST, AFRM, and CVNA.
@SuperLuckeee believes UPST can have a similar run to NVDA.
Technical Analysis
UPST stock’s trend is bullish with the stock trading in an upwards channel. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which are bullish indications. Meanwhile, the RSI is neutral at 58 and the MACD is approaching a bearish crossover.
As for the fundamentals, UPST stock could see a catalyst if the Fed decides to pause rate hikes at its June 14 meeting. In case of a pause, a short squeeze could occur to UPST stock due to the high short interest.
UPST Stock Forecast
With the expectation that the Fed will pause rate hikes in June, UPST can expect to see higher demand for its loan assessment tool. UPST can also expect to see more financial institutions willing to buy loans held by it since the interest rate appears to be approaching its peak. If UPST can prove to the banking sector that its loan assessment model is better than other models like FICO’s, that could make UPST’s current PPS a bargain.
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