Investors can sometimes find worthwhile investment ideas if they look at the technological trends shaping the economy. One area that’s getting a lot of attention is of course artificial intelligence (AI). Another industry niche to keep tabs on has been fintech.
There’s one stock that straddles both of these domains. And this might be very interesting for investors who have some money to put to work. The issue, however, is that the shares are 88% below their peak (as of May 23).
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If you buy this AI stock now, can it double your investment in five years? Let’s take a closer look at this innovative business.
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Bringing AI to financial services
Investors might already be familiar with Upstart (NASDAQ: UPST). As of this writing, the company carries a small market cap of $4.5 billion. However, don’t let that distract you from what the business actually does.
Upstart partners with different banks and credit unions, providing these lenders with its AI-powered credit assessment tool that management claims can approve more borrowers while lowering default risk. This is a win-win scenario for lenders that want to maximize revenue potential while also minimizing potential losses.
To date, Upstart has helped to originate more than $42 billion worth of loans. And in the first quarter of 2025, the company said that 92% of its loans were fully automated from start to finish, requiring no human intervention. That’s the power of technology.
Historically, personal loans have been the bread-and-butter product line that Upstart offered, something that remains true today. But the business now offers auto loans and home equity lines of credit. These three lending markets have annual originations of more than $2 trillion in the U.S., which in theory opens a huge opportunity for Upstart.
Financial results are dependent on macroforces
In 2021, Upstart shares skyrocketed 857% higher from the start of that year to their peak in mid-October. Bullish fever on Wall Street helped. But the company’s monster growth was the key driving force. Upstart posted 264% and 338% gains, respectively, in revenue and transaction volume in 2021 compared to the year before.
Higher rates in the past couple of years battered the company’s financial performance. In 2023, Upstart’s revenue tanked 39% year over year, and it registered a huge $240 million net loss. It’s no wonder the stock fell precipitously.
Things are starting to improve. Revenue and transaction volume surged 67% and 102%, respectively, in Q1. And for the full year of 2025, the leadership team expects to achieve positive net income in accord with generally accepted accounting principles (GAAP). That’s definitely an encouraging sign for what has been a historically money-losing enterprise.
The positive view is that Upstart’s AI model should get better over time, particularly as it collects more data on borrowers and their repayment activity. Additionally, the business has now navigated rapidly rising interest rates, so it can be better prepared for when tighter macroeconomic conditions prevail in the future.
The negative spin is that a possible recessionary scenario could not only restrict demand for loans but result in higher delinquencies. This is true for any lender. Operational performance is always dependent on how the broader economy is doing.
High upside but high risk
The fact that Upstart operates in huge loan markets, in addition to its shares being so beaten down, unsurprisingly adds upside for the long term. The stock trades at a forward price-to-earnings (P/E) ratio of about 29. That looks very reasonable considering the average analyst forecast has diluted adjusted earnings per share going from a loss of $0.20 in 2024 to a positive $3.03 in 2027.
To be clear, I wouldn’t be surprised if the stock doubled between now and 2030. However, there needs to be a favorable economic backdrop and stellar execution by management — factors that aren’t guaranteed.
So, it’s worth pointing out that Upstart only makes sense for investors who have a high risk tolerance. There’s a lot of uncertainty about the company’s staying power. And the ability to generate rising profits, which is of the utmost importance, still must be proven.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.
