What Happened?

Shares of AI lending platform Upstart (NASDAQ:UPST) jumped 45.2% in the afternoon session after the company reported impressive earnings and provided an encouraging sales outlook for the next quarter which blew past analysts' expectations. Its revenue also outperformed Wall Street's estimates during the quarter. Upstart achieved sequential 43% growth in lending volume, driven by enhancements to its predictive models. These advanced models more accurately assessed creditworthiness, leading to higher conversion rates and increased customer approvals.

Despite the elevated interest rate environment, which has constrained lending businesses they scrutinize consumer creditworthiness more intensely to avoid losses, the company managed to achieve positive adjusted EBITDA. Zooming out, we think this was an impressive quarter amid a challenging operating environment highlighting management improved growth of the market dynamics.

Given the impressive result, Piper Sandler analyst Arvind Ramnani upgraded the stock's rating from Neutral to Overweight (Buy) citing the more accommodative macro environment as rates begin to come down.

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What The Market Is Telling Us

Upstart’s shares are extremely volatile and have had 67 moves greater than 5% over the last year. But moves this big are rare even for Upstart and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 25 days ago when the stock gained 17.5% on the news that a Wedbush analyst upgraded the stock's rating from Underweight (Sell) to Neutral and raised the price target from $10 to $45. The analyst thinks the current price offers a balanced risk/reward. Several factors support this view, including " improving credit quality metrics, lower interest rates, and improving Upstart Macro Index could drive a positive inflection in originations and adjusted EBITDA in the second half of 2024."

Upstart is up 107% since the beginning of the year, and at $80.04 per share, has set a new 52-week high. Investors who bought $1,000 worth of Upstart’s shares at the IPO in December 2020 would now be looking at an investment worth $2,723.

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