What Happened:
Shares of AI lending platform Upstart (NASDAQ:UPST) fell 6.91% in the morning session after the broader market weakened following Fitch's announcement that it cut the U.S. long-term foreign currency issuer default rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years,” an erosion of governance in light of “repeated debt-limit political standoffs” and a generally growing debt burden.
After a strong year-to-date performance for the market and for the tech sector specifically, many investors are probably re-assessing the economic backdrop and taking profits. On the other hand, earnings season is more than halfway done and well over half of companies have reported better-than-expected results when compared to Wall Street analysts' Consensus estimates. This gives ammo to the bulls, who argue that the economy is on firm footing.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Upstart? Access our full analysis report here, it's free.
What is the market telling us:
Upstart's shares are very volatile and over the last year have had 100 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was three months ago, when the stock gained 35.6% on the news that the company reported first quarter results that exceeded analysts' revenue, adjusted EBITDA, and earnings per share (EPS) estimates. However, the company continued to burn cash. Revenue guidance for the next quarter came in above Consensus and the company expects adjusted EBITDA to be nearly breakeven, which is a major milestone. What makes the company unique in the SaaS space is its exposure to lending.
Given recent failures and other difficulties in the banking sector, there was added uncertainty coming into this quarter. Management addressed these concerns by providing positive commentary that "despite macro challenges, we secured multiple long-term funding agreements, together expected to deliver more than $2 billion to the Upstart platform over the next 12 months."
Upstart is up 413% since the beginning of the year, and at $65.98 per share it is trading close to its 52-week high of $72.09 from July 2023. Investors who bought $1,000 worth of Upstart's shares at the IPO in December 2020 would now be looking at an investment worth $2,250.
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