Upstart Stock Tanks 32% in 3 Months: Time to Hold or Book Loss?

Upstart Holdings, Inc. UPST has seen a sharp 32.1% drop in the past three months, far underperforming the broader Zacks Financial - Miscellaneous Services industry, which slipped just 5.2%. Compared to peers like SoFi Technologies SOFI, LendingClub LC and Enova International ENVA, UPST stock has clearly been hit harder.

Three-Month Price Return Performance

The recent decline has left investors asking: Is this the time to cut losses, or does UPST still have long-term value? While the near-term picture is cloudy, Upstart Holdings’ long-term growth story remains intact, making a strong case for holding the stock.

Why Did Upstart Holdings Struggle?

Upstart Holdings’ recent decline has more to do with broader market headwinds than company-specific challenges. A widespread tech sell-off, fueled by fears of a global economic slowdown and escalating trade tensions, has weighed heavily on high-growth stocks, including UPST.

Many companies that had benefited from the AI-driven rally, like Upstart Holdings, are now going through a reset. Despite the recent plunge, the stock is trading at a premium compared with the industry average. UPST trades at a forward 12-month price/sales (P/S) multiple of 3.83X, slightly higher than the industry’s 3.48X.

Compared with major fintech rivals, the stock trades at a premium to LendingClub and Enova International while at a discount to SoFi Technologies. At present, LendingClub, Enova International and SoFi Technologies have P/S multiples of 1.15X, 0.7X and 4.13X, respectively.

Shares of Upstart Holdings have plunged 53% from the 52-week high of $96.43 (reached on Feb. 13) amid this broader correction. With the recent decline, Upstart Holdings shares have been down 26.5% year to date (YTD) against a YTD gain of 36.7% at their February peak.

Nonetheless, the recent decline looks more like a painful correction than a collapse. Long-term investors should view this decline as a temporary setback rather than a sign of fundamental weakness.

UPST’s Real Strength: Smarter Lending With AI

Upstart Holdings’ core value lies in its use of artificial intelligence (AI) to assess borrower creditworthiness. Unlike traditional lenders that rely heavily on FICO scores, UPST uses additional factors like education and employment history to make more informed decisions.

In the first quarter of 2025, an impressive 92% of the loans processed through Upstart Holdings’ platform were fully automated. This means fewer manual reviews, faster approvals and lower operating costs. These features are crucial in a competitive personal loan market.

However, the story doesn’t stop with personal loans. Upstart Holdings is also expanding into other verticals, including auto loans, home equity lines of credit (HELOC) and small-dollar emergency loans. These areas are showing momentum. In the last reported quarter, auto loan originations rose 42% quarter over quarter, HELOCs were up 52%, and small-dollar loans increased 5%.

Improved AI models, better customer conversion and new features like real-time income verification are driving this growth by making borrowing simpler and faster.

UPST’s Model Upgrades Are Changing the Game

Upstart Holdings’ biggest edge lies in its technology. The company’s AI models are constantly evolving. Its latest model, Model 19, adds a new layer called the “payment transition model”, which tracks a borrower’s movement between different stages of repayment, instead of just marking a loan as ‘paid’ or ‘defaulted.’ This lets Upstart Holdings make better predictions and fine-tune risk levels.

Before that, Model 18 added APR (annual percentage rate) as a factor, making the system even more accurate. These changes are paying off. Upstart has improved its conversion rate from 14% a year ago to 19% in the latest quarter. Such improvement in a high-volume lending business is meaningful.

This type of innovation is what gives UPST a chance to outperform traditional lenders in the long run. In the last reported quarter, Upstart Holdings’ total revenues soared 67% year over year to  $213 million, while the non-GAAP EPS of 30 cents demonstrated a strong improvement from the year-ago quarter’s loss of 31 cents.

The company’s growth story seems to remain rosy. The Zacks Consensus Estimate for 2025 revenues indicates robust year-over-year growth of 59%. The consensus mark for EPS is pegged at $1.46, indicating a strong improvement from a loss of 20 cents in 2024.

Final Thoughts: Stick With UPST for Now

Upstart is a rare fintech with strong technology, growing loan segments and a clear vision. However, it’s also trading at a relatively high valuation, which makes it vulnerable to market swings. The recent drop doesn’t change the core story. For now, holding the stock seems like the right move, especially if you have a longer investment horizon.

Currently, Upstart Holdings carries a Zacks Rank #3 (Hold). 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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