Upstart (NASDAQ:UPST) shares made slight gains Tuesday after JPMorgan initiated coverage of the lending stock with an underweight rating, citing a worsening environment for loans.
The stock was a darling during the tech boom in 2021. The stock price rose from $44 when it went public to close to $400 per share, trading at an astronomical valuation.
However, the rising interest rate environment has been devastating to high-flying tech stocks, and what went up has now mostly come down. With such a meteoric rise, Upstart has been hit hard, and shares have come crashing down to roughly $17 per share.
One reason is Upstart uses proprietary algorithm models to underwrite loans. The company believes it can better assess credit quality than traditional underwriting models. The goal is for Upstart to identify borrowers lower on the credit spectrum who are creditworthy, so they can give these borrowers better interest rates while identifying new customers for financial institutions.
Upstart loans are either funded by and retained by the balance sheets of banks and credit unions, or sold to investors. But even in extremely benign credit conditions in 2021, only 16% of Upstart loans were funded by and retained by financial institutions. The rest were sold to whole-loan buyers or securitized.
UPST squeezed up six cents to $17.24
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