FinTech AI Lender Upstart (UPST) Rallies on Day, Tops PRISM NextGen Tech and AI Index Despite Dismal Outlook

The cloud-based AI lending platform, Upstart Holdings, Inc. (UPST) announced its first quarter earnings on Tuesday, after market close. The company beat on all earnings metrics mostly due to lower marketing costs but guided well below Street estimates for the second quarter citing adjusted net income of ~($36M) vs FactSet ($12.3M) and revenues ~$125M vs FactSet $145.3M. Upstarts outlook for the second half of 2024 also remains dismal due to poorer credit performance from more affluent borrowers. While guidance disappointed it wasn’t much of a surprise due to the “higher for longer” rate environment.

To add to the company’s woes, it also disclosed receipt of a SEC subpoena related to its use of AI in its models, with no ability to predict the outcome on the matter. The use of AI in lending has started to come under scrutiny by multiple regulatory agencies as possible biases or flawed criteria have the potential to produce negative outcomes. 90% of Upstart’s unsecured loans are fully automated. On the report, shares fell ~5% but have made a comeback today closing out the day up 13% leading the PRISM NextGen Tech and AI Index.