Why Upstart Stock Plunged 23% in July
Key Points
High interest rates and concerns about software-as-a-service stocks in the agentic AI era have weighed on Upstart stock.
Upstart delivered solid performance in the second quarter, with a 42% year-over-year increase in revenue and positive net income.
Management says it has an edge over traditional credit underwriting models.
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Upstart (NASDAQ: UPST) stock dropped 23% in July, according to data provided by S&P Global Market Intelligence. There was macroeconomic data pointing to continued pressure for lenders, which is its core business, as well as continued concern about agentic artificial intelligence (AI) replacing software-as-a-service (SaaS) products.
Upstart is in for a long recovery
Upstart stock plunged several years ago when it couldn't sustain incredibly high growth as interest rates rose, and it hasn't gotten back on its feet yet. The business has somewhat recovered, but it's not where it used to be. It's also facing a tough macroeconomic environment, hampering market confidence in its future.
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On top of that, the market has soured on many SaaS stocks in the age of agentic AI. The worry is that agents can perform many of the tasks that these companies take care of. Upstart is an AI-based credit evaluation platform, and it claims to approve more loans without adding risk to the lender. It uses machine learning and thousands of data points to continually improve, offering real value to its clients, and it says its underwriting model has been 2.74 times as good as traditional models over the past eight years. The fear is that agents can do this just as well.
So far, Upstart continues to make its way back up, and it has been demonstrating solid performance over the past few quarters. In the 2026 second quarter, revenue increased 42% year over year, and originations were up 50%. Net income nearly tripled to $16.5 million, but Upstart has been in and out of generally accepted accounting principles (GAAP) profitability for several quarters.
The future still looks bright
The company is still well-positioned to keep growing. Management is targeting a 40% revenue increase for the 2026 full year, and it also provided longer-term guidance of a 35% compound annual growth rate through 2028.
It continues to expand, and new products present new opportunities. It has added auto loans and home loans to its original, core personal lending products, and its secured auto and home loan originations increased 218% year over year in the second quarter. Management says that it has reduced the cost of its home equity product by 15%, and that it can be approved in six days with a price advantage of two percentage points vs. competitors.
It has also signed several funding rounds for its loans so it's keeping a small amount on its books. That reduces its direct exposure to high interest rates.
Upstart stock rose after earnings, but the stock is still well off its high as the market weighs its performance against its risks.
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Jennifer Saibil 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.
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