Picking individual stocks requires considerably more research and effort than simply choosing a passive investment strategy.
Fintech companies can look deceptively similar from the outside, making it critical to dig into specific business models and revenue structures.
Upstart Holdings (NASDAQ: UPST) offers a compelling case study for investors learning to evaluate companies in the financial technology sector.
Some of the greatest investors ever, including Peter Lynch and Warren Buffett, focused relentlessly on owning companies that they knew very well.
Upstart has been developing artificial intelligence capabilities ever since it was founded more than a decade ago, long before AI became a mainstream investment theme.
The company has built an AI-powered credit assessment tool that analyzes over 3,000 unique variables about potential borrowers to better evaluate default risk.
Upstart generates revenue by providing its AI tool to more than 100 bank and credit union partners, collecting fees whenever a loan gets approved.
The platform currently offers personal loans, auto loans, and home equity lines of credit, and following a bank charter approval, it plans to launch Upstart Bank in early 2027.
Upstart aims to keep loans off its own balance sheet, and as of June 30, 94.1% of loans outstanding were held by third parties, with $1.1 billion carried in-house.
Management is forecasting revenue of $1.4 billion in 2026, which would represent growth of approximately 40% compared to the previous year’s total.
A key uncertainty remains how Upstart performs across a full credit cycle, as the business has not yet been tested through a proper recession.
Profitability is the second major factor investors should examine when evaluating any fintech stock, as early-stage companies often prioritize growth over earnings.
Upstart generated $135 million in net income in 2021, then followed with three consecutive years of losses totalling $478 million from 2022 through 2024.
The company returned to profitability last year, posting $54 million in net income, demonstrating that the business model can produce positive earnings under favorable conditions.
The central question for investors now is whether Upstart can grow both revenue and net income consistently over a long period, which would make it a far more attractive investment candidate.
