Upstart's AI Underwriting Edge: Can It Keep Driving Loan Growth?

Upstart Holdings, Inc. UPST leverages AI to revolutionize consumer lending. Its underwriting models — built on layered neural networks — have enabled the company to automate 92% of loan approvals. This deep automation has yielded sharp improvements in conversion rates and driven originations significantly higher, reflecting both strong demand and AI-driven efficiency. In the second quarter of 2025, originations surged 154% year over year to $2.8 billion, and conversion rates improved to 23.9% from 15.2% a year earlier.

The company’s latest underwriting upgrade, Model 22, marked a significant leap by embedding neural networks into the top “meta” layer of decision-making. This enhanced separation accuracy by roughly 17 percentage points compared to traditional credit models, boosting risk prediction and underwriter confidence. These improvements boosted take rates and reduced acquisition costs, strengthening contribution margins at 58%.

Beyond underwriting, Upstart is piloting AI-based servicing tools that help reduce delinquencies and is exploring individualized recovery suggestions to improve collections and borrower outcomes.

Upstart is also demonstrating the portability of its AI across lending verticals. Auto originations grew 87% sequentially to $114 million, while Home equity originations climbed 67% sequentially to $68 million. Supportive technologies like instant property verification and remote notarization illustrate how AI is smoothing friction across new product lines.

Internally, Upstart’s adoption of generative AI is palpable: 60% of developers are active users of LLM-powered tools, with 700+ custom GPTs created. On the borrower side, AI is powering explainability features and enhanced customer support. These tools not only streamline operations but also lay the groundwork for future AI-driven customer interactions.

What Are Other Fintechs Doing With AI?

In today’s rapidly evolving financial technology landscape, leading companies like PayPal PYPL and Intuit Inc. INTU are leveraging artificial intelligence to redefine digital commerce and financial services. 

PayPal is also investing in AI-driven “agentic commerce” experiences in partnership with Anthropic and Salesforce, along with expanding crypto integration through its PYUSD stablecoin and “Pay with Crypto” option. These innovations extend PayPal’s relevance well beyond traditional payments, potentially positioning it as a foundational player in next-generation digital commerce.

Intuit’s launch of a virtual team of AI agents marks a significant innovation push. These agents automate workflows and provide real-time insights, with millions of customers already engaging since launch. Early adoption rates have exceeded expectations, suggesting that AI will become a major growth driver across Intuit’s QuickBooks, TurboTax and the broader ecosystem in the coming years.

Upstart’s Price Performance, Valuation and Estimates

Shares of Upstart have climbed 21.2% in the past three months, outperforming both the broader industry and the S&P 500 composite.

From a valuation perspective, we note that Upstart shares are currently overvalued, as suggested by the Value Score of F.

In terms of forward 12-month Price/Sales (P/S), Upstart is currently trading at 5.33X, which is at a premium to the industry average of 3.49X.

The full-year 2025 Zacks Consensus Estimate for EPS has been revised upward over the past month. The same for 2026 has also been adjusted above the prior projections.

Currently, Upstart carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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