Down Over 90%, Is it Finally Time to Buy This AI Stock?
Summary
Parkev analyzes Upstart, an AI-powered lending platform, highlighting both its challenges and opportunities. He notes the upcoming bank license in 2027, which is a major focus of increasing expenses but promises lower funding costs and enhanced competitiveness, akin to SoFi's transformation. However, the macroeconomic environment presents significant headwinds; the Upstart Macro Index indicates a 50% higher default probability compared to pre-COVID levels, driven by soaring living costs and record consumer debt, especially among lower-income individuals. This situation is more precarious than the 2022 rate hike cycle, as pandemic stimulus funds have been depleted. Parkev recalls how Upstart's business model was forced to shift in 2022, becoming a lender of last resort and holding loans on its balance sheet when other lenders withdrew.
Despite these risks, Parkev finds the stock's valuation highly attractive after a 93% drop from its all-time high. The forward P/E of 6.8 is the lowest it has ever been. His discounted cash flow model suggests a fair value of $58 per share, significantly above the current market price of $24, implying the stock could more than double within 12-18 months. Parkev acknowledges that investing in Upstart is a high-risk proposition, given the company's exposure to personal loans—the first type of debt consumers tend to default on during economic hardship—and the worsening macro outlook with rising oil prices, interest rates, food, and rent costs. Therefore, Parkev explicitly recommends Upstart only for investors with the highest risk tolerance who are seeking substantial potential returns from a high-risk situation.
Mentioned Stocks
Reasoning: Parkev confirms his buy recommendation for Upstart, despite acknowledging it as a high-risk investment suitable only for investors with the highest risk tolerance. He highlights the company's upcoming bank license by 2027 as a future positive, which will significantly reduce funding costs and increase competitiveness, similar to SoFi's model. The current valuation is a major draw, with the stock trading at an all-time low forward P/E of 6.8, having fallen 93% from its peak. Parkev's discounted cash flow model values Upstart at $58 per share, significantly above its current market price of $24, suggesting a potential to more than double in 12-18 months. However, he also points to severe macroeconomic headwinds: the Upstart Macro Index indicates a 50% higher default risk compared to 2019, driven by soaring costs of living, record consumer debt, and weakened consumer balance sheets. Upstart's reliance on personal loans, which are the riskiest and first to default during economic downturns, further elevates its risk profile in a deteriorating economic environment marked by rising interest rates, oil prices, and essential living costs.