Is Upstart Too Expensive Now? A Wait-and-See Approach May Help

Upstart Holdings, Inc. UPST has staged a notable rebound, buoyed by investor optimism around its AI-driven lending platform and strategic execution. The company continues to disrupt traditional credit models by leveraging machine learning to enhance consumer loan underwriting.

However, valuation concerns are emerging. Upstart currently holds a Value Score of F, signaling potential overvaluation. Its forward 12-month Price/Sales ratio stands at 5.23, significantly above the industry average of 3.86.

This valuation premium has led to some caution among investors. While the growth narrative remains compelling, questions are rising about whether the stock’s recent surge is fully justified.

Upstart Holdings is reshaping credit underwriting with its proprietary AI model that goes beyond traditional FICO scores. By incorporating education, employment and financial behavior, it enables more precise borrower assessments. In the first quarter of 2025, 92% of loans on its platform were fully automated, boosting both efficiency and borrower satisfaction. Conversion rates rose from 14% to 19% year over year, reflecting the growing impact of its model enhancements.

The company is also diversifying aggressively. New verticals like auto loans, HELOCs and small-dollar credit are gaining traction, with robust growth in some segments. Partnerships with credit unions, like All In Credit Union, highlight Upstart’s appeal in traditional finance. The company’s focus on super-prime borrowers, now 32% of originations, helps secure low-cost funding and manage credit risk more effectively.

However, challenges remain. Elevated interest rates and a dip in contribution margins are notable. The growing super-prime borrower mix, while improving credit quality, also results in lower take rates due to intense competition. Moreover, margins in newer products like HELOC and auto lending are expected to mature over time, with initial take rates being modest due to early-stage scaling. Moreover, macroeconomic uncertainty and trade tensions add to the company’s woes.

This calls for a more measured approach at current levels. Much of the recent enthusiasm appears priced in, making it wise to consider waiting for a more attractive entry point. While the underlying fundamentals remain compelling, allowing the valuation to realign with the company’s long-term potential could present a more balanced risk-reward setup.

Are Other Fintechs Offering Better Value?

Block, Inc. XYZ is scaling a dynamic fintech ecosystem through Square and Cash App, offering end-to-end solutions across payments, commerce, lending and banking. With innovations like Cash App Afterpay and gains in Square’s gross profit, Block continues expanding despite macroeconomic headwinds. However, Block shares are also overvalued, as suggested by the Value Score of D. In terms of forward 12-month Price/Earnings (P/E), Block is trading at 22.57X compared with PayPal’s 13.74X.

PayPal PYPL is transforming into a full-spectrum commerce partner, unifying its platform to serve both consumers and merchants. Growth in branded checkout, Venmo, and BNPL is boosting user engagement, though near-term margin pressure persists amid global expansion and macro uncertainty. PayPal shares are trading cheap, as suggested by the Value Score of B. In terms of forward 12-month P/E, PYPL stock is trading at 13.74X compared with the Zacks Financial Transaction Services industry’s 22.48X.

Upstart’s Price Performance and Estimates

Shares of Upstart have climbed 37.8% quarter to date, outperforming both the broader industry and the S&P 500 Index.

While the full-year 2025 consensus mark for EPS has been revised slightly downward over the past week, the same for 2026 has been adjusted above the prior projections. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

At present, Upstart 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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