Is Upstart Stock a Millionaire Maker?

Most investors know that not every stock is going to yield massive gains. In fact, most will dish out merely average performances. That's why you own several stocks at any given time -- to give yourself a better chance of holding at least one or two such big winners.

But sometimes, a compelling name comes along that looks more likely than most to deliver a life-changing amount of upside. Credit scoring outfit Upstart (NASDAQ: UPST) is one of these companies that's caught the attention of savvy speculators.

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How is Upstart changing a long-established industry?

Upstart is an alternative to traditional credit bureaus like Equifax (NYSE: EFX), TransUnion (NYSE: TRU), and Experian (OTC: EXPGY). However, using an artificial intelligence (AI)-powered algorithm that considers more than 2,500 different data points about a particular individual, Upstart can make lending decisions that result in fewer defaults and, ultimately, 43% more loan approvals than conventional approaches.

After its business bumped into turbulence during, after, and because of the COVID-19 pandemic, things stabilized in 2024, allowing the company's revenue growth to resume at a pace of 64% to total $1 billion last year, when it swung to a profit of $53.6 million. Analysts are looking for comparable top- and bottom-line growth this year as well as next.

Data sources: Simply Wall St., MarketWatch, CNBC. Chart by author.

That's impressive, to be sure. And, kudos to the company for coming up with an idea that a competitor like Equifax or TransUnion should have figured out well before the AI revolution currently underway first took hold.

Does this company, however, have enough opportunity ahead of it to make unexpected millionaires out of ordinary investors? Probably not.

Nothing inspires competition as much as success

However, last year's 1.5 million loan originations are only a fraction of the United States' total lending business. There's room to grow. What's eventually going to slow Upstart down, though, is the industry's stalwarts embracing AI to do something similar.

Equifax launched its Equifax Amplify AI platform in the middle of last year, empowering the company's customers with more ways to extract decision-making insights from their existing data. Late last year, Experian answered its own question, "What is AI credit scoring?" by plainly laying out how it's using AI to provide lenders with more meaningful information about prospective borrowers.

And just last month, TransUnion unveiled its AI Analytics Orchestrator Agent. This platform "accelerates and simplifies advanced credit analytics, making them faster, more transparent, and accessible for the financial services industry."

None of this technology quite does what Upstart's does yet. Given enough time, however, some of it will become an exact alternative, allowing these bigger rivals to compete with Upstart with a comparably capable product.

In other words, the inevitable is finally happening.

Still not a bad bet for the foreseeable future

While Upstart will eventually face more direct competition, having launched all the way back in 2012, it's got a big head start when it comes to leveraging AI. It will take a while for rivals to truly refine their products and then leverage their size and existing reach. Upstart stock could certainly dish out some serious gains in the meantime, even if it won't be able to do so long enough to turn a relatively small amount of money into seven figures.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Equifax and Upstart. The Motley Fool recommends Experian Plc. The Motley Fool has a disclosure policy.