Upstart Holdings (NASDAQ:UPST) was one of the big investment growth stories of 2021. At least, until last October. At that point, UPST stock crashed and it also became a cautionary tale about the downside of meme stocks. Upstart shares are now trading at around $120, which is right about where they were last June. They’re down from UPST stock’s October 2021 high close by nearly 70%.

Yes, Upstart is a cautionary tale about meme stocks.

However, Upstart is very different from many of its “meme peers.”

It’s not a speculative play on a race to a Covid-19 vaccine. Upstart is not a company that has been circling the drain. It’s not a business that has suddenly pivoted to selling cryptocurrency or electric cars.

Upstart is an impressive startup with a solid business model, impressive technology, and serious long-term growth potential. That makes the current price for UPST tough to resist for a growth focused portfolio.

The Allure of AI-Powered Lending

Banks have been using computer-powered, automated underwriting tools for decades. And yet, the technology has never lived up to the promise. It’s inflexible, relies heavily on credit scores (which are themselves error-prone), has challenges with effective fraud detection, often delays processes due to the need for frequent human intervention, and offers a poor customer-facing experience.

In 2016, the Consumer Financial Protection Bureau released a bulletin scolding mortgage lenders for the use of “bad computer systems or outdated technology.”  

Still, artificial intelligence (AI) promises to be a game-changer. AI with machine learning has the ability to work faster, with fewer errors. AI-powered systems “learn” from outcomes and from a growing data warehouse. AI has the potential to make a huge impact in banking through greater speed and fewer errors in underwriting, outperforming human underwriters in decision-making. A 2020 McKinsey Group study estimated that AI adoption could unlock $1 trillion in annual incremental value for the global banking industry.

Upstart Delivers on the Promise of AI-Powered Lending

Why has UPST stock been a hot commodity since the company went public in 2020? Here’s the company’s own description of its value proposition to lenders:

By leveraging Upstart’s AI platform, Upstart-powered banks can offer higher approval rates and experience lower loss rates, while simultaneously delivering the exceptional digital-first lending experience their customers demand. 

Upstart’s AI-powered lending platform is delivering results. As of June 2021, the company claims that $13.6 billion worth of loans have been underwritten using its system. Further, 71% of those were fully automated from end-to-end, with no human intervention.

What Caused the Surge And Crash of UPST Stock?

Upstart is proving to be very successful. The company’s second quarter 2021 earnings results were off the charts. Revenue of $194 million was up a whopping 1,018% year-over-year (YoY). The company’s chief executive officer fanned the flames by stating:

Our second quarter results continue to show why Upstart has the potential to be among the world’s largest and most impactful FinTechs… Lending is the center beam of revenue and profits in financial services and artificial intelligence may be the most transformational change to come to this industry in its 5,000 year history.”

The hype resulted in retail investors piling on and saw an extended rally in UPST stock that saw shares rocket from $135.68 to a $390 close on Oct. 15, 2021. 

The glow came off Upstart when the company reported third-quarter earnings last November. Revenue was up only 250% YoY. A number that beat the company’s guidance, but disappointed investors who were expecting a repeat of Q2’s spectacular growth.

Besides the fact that those who dumped their UPST shares had completely unrealistic expectations about sustainable growth, they also missed an important point. In Q3, the company noted that number of banks, credit unions, and auto dealerships using its platform had tripled since its 2020 initial public offering (IPO). AI gets “smarter” as it has access to more data. Upstart’s AI lending platform is good now, but it’s only going to get better as more customers sign up.

That spells long-term revenue growth, profit growth, and UPST stock growth.

Bottom Line on UPST Stock

As I mentioned in the introduction, UPST stock was one of the better-known meme stocks of 2021. However, it’s clearly much more than a meme stock and well worth considering, especially at its current price. It’s also worth mentioning that even after the punishment that shares have taken over the past three months, UPST is still up around 100% over the past 12 months. In addition, it has posted growth of over 183% since the stock was first listed in December, 2020.

In other words, don’t make the mistake of having UPST’s dramatic rally and drop since last August be its defining story.

Check Portfolio Grader and you’ll find that UPST earns an “A” rating. The investment analysts polled by the Wall Street Journal are definitely bullish about Upstart and its growth prospects as well. Their consensus rating for UPST stock is “overweight.” They have an average price target of over $263. Do the math on that price target and you’ll see they’re projecting growth in the range of 116% over the next 12 months. That price target is still nowhere near UPST’s $390 close last October, but it shows a confidence in the company.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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