Is Upstart's AI Lending Comeback the Real Deal?

Over the past five years, Upstart Holdings (NASDAQ: UPST) has experienced roller-coaster price action. After initially surging following its public market debut, high interest rates and falling loan demand led to a steep drop in revenue and ballooning losses.

In the years since, however, the artificial intelligence lending technology company's revenue has bounced back. Upstart has also become consistently profitable. However, with shares still down by over 92% from their high-water mark, Upstart has a long way to go before making even a partial recovery. A further rebound for this fintech stock remains possible, but major uncertainties remain.

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Upstart and its latest results

On May 5, Upstart released results for the first quarter. As seen in the results, the AI lender's growth stream continues unabated. Transaction volumes were up 77%, with total originations coming in at $3.4 billion, a 61% increase from the prior year's quarter.

Upstart operates like a marketplace. Financial institutions partner with the company, utilizing its AI models and cloud-based application to assist with loan underwriting and risk assessment. The company has yet to enter the mortgage space, but it provides its technology for auto loans, personal loans, and home equity lines of credit.

Alongside promising results for the prior quarter, the company also provided updates that may bode well for this growth stock. For instance, Upstart reiterated its 2026 guidance, with management calling for $1.4 billion in revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $294 million, representing a 34% and 27.5% increase, respectively, compared to 2025 results.

To top things off, on the earnings conference call, CEO Paul Gu reiterated Upstart's plans to continue pursuing a national charter, while also noting that Upstart plans to continue to "rely primarily on third-party capital." Rather than morph into a bank, as some fintechs such as SoFi Technologies have done, Upstart's motives for obtaining a bank charter have more to do with enabling it to expand its presence to all 50 states and reduce compliance and back-office costs.

Top risks to the bull case

Although top-line growth was strong, there were also some issues with Upstart's results. The company reported negative operating income and net income, both of which increased from the prior year's quarter.

Operating losses came in at $7.5 million, up from $4.5 million during Q1 2025, while net losses came in at $6.6 million, up nearly threefold from Q1 2025. Even on an adjusted EBTIDA basis, Upstart was less profitable year over year. Last quarter, adjusted EBITDA came in at $40.5 million, slightly below the $42.6 million in EBITDA reported in Q1 2025.

Moreover, given uncertainty about Upstart's path to greater profits, it's not surprising that this stock's short interest remains high, at around 32% of the outstanding float. Thanks to the post-COVID economy's relative soft landing, Upstart's AI-based underwriting models have yet to get the sort of stress test needed to determine their resilience.

Only time will tell whether Upstart can raise margins as strong top-line growth continues. The same holds true for the credit performance of its loan originations. Trading for 35 times forward earnings, Upstart isn't exactly cheap. Either wait for lower prices or for positive developments on these key uncertainties before buying Upstart stock.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.