Shares of Upstart Holdings, Inc. (NASDAQ: UPST), the AI-based lending platform, skyrocketed last month following positive developments for the company. The stock experienced a remarkable 96% jump, driven by several key factors.
Firstly, on May 10, Upstart’s stock surged 35% after the company announced its first-quarter earnings report. Although the current macroeconomic environment posed challenges, Upstart reported a narrower-than-expected loss. Despite a 63% decline in total revenue to $103 million (missing the consensus estimate of $109 million), the company’s adjusted loss per share was $0.47, surpassing estimates that predicted a per-share loss of $0.81. This promising outcome sparked the initial wave of gains.
Upstart also provided an optimistic outlook for the second quarter, projecting revenue of $135 million, slightly above expectations, and flat adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This improvement in financials contributed to the positive sentiment surrounding the stock.
In addition, on May 15, the stock surged another 24% following an agreement with Castlelake, a global alternative investment manager. Castlelake agreed to purchase up to $4 billion in consumer installment loans from Upstart, enhancing the company’s financial flexibility. Investors responded favorably to this news, driving the stock’s upward momentum.
During the latter half of the month, Upstart’s stock continued to climb, seemingly fueled by a short squeeze as trading volumes remained above normal. Given that 35% of the stock was sold short as of May 15 and the stock had experienced a massive decline of over 90% from its peak in 2021, there was a significant likelihood of a short squeeze occurring.
Potential Short Squeezes Add to Upstart’s Uncertain Outlook
Upstart appears to have weathered the worst of the credit cycle, and its guidance for the second quarter instills confidence in improved performance. However, due to the stock’s historical volatility and sensitivity to macroeconomic factors, uncertainty still surrounds its future. Investors should anticipate continued volatility, especially considering the possibility of further short squeezes.
