Bear of the Day: Upstart (UPST)

Upstart: An AI-driven Lending Platform

Zacks Rank #5 (Strong Sell) stock Upstart (UPST) manages an AI-powered lending platform. The San Mateo, California-based company partners with financial institutions such as banks and credit unions to approve consumer loans for home, auto, and personal use. Unlike traditional lenders, UPST leverages its artificial intelligence technology to analyze and approve loans using variables beyond FICO scores.

How Does Upstart’s Business Work?

The company leverages machine learning and artificial intelligence algorithms to analyze more than 1,500 data points. Then, through Upstart, routes any approved loans to its network of more than 100 financial institutions, earning a finder’s fee for each loan originated through its platform. Over the past few years, Upstart has broadened its business beyond solely personal loans offer automotive and mortgage loans.

2026 Tax Refund is a Negative Catalyst for Upstart

According to the White House Website, the Trump Administration will deliver the largest tax refund season in U.S. history. In 2024, and 2023 the average tax refund in the United States was ~$3,000. According to “The Tax Foundation”, for 2026 (2025 tax returns), the average tax refund will be $3,800 (representing a 26.67% increase). Meanwhile, “The Wall Street Journal” predicts that “Total taxpayer savings could amount to an additional $50 billion through bigger tax refunds or a cut in their 2026 taxes” due to the fact that 94 million taxpayers overpaid on their 2024 federal tax returns.”

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The 2026 windfall tax return season will most positively impact Upstart’s low-income, low-credit-score user base, dramatically reducing the need for personal loans and debt consolidation.

Trump Administration Seeks Loan Crackdown

In recent months, President Trump and his administration have put a heavy emphasis on affordability and loan fairness. If the Trump administration pursues tighter regulations on lending standards and underwriting practices, Upstart’s non-traditional, AI-based lending practices come under greater scrutiny. Meanwhile, the removal of federal student loan protections could lead to higher defaults and worse-performing loans for Upstart’s business.

Wall Street Analysts Sour on Upstart

Although Upstart’s earnings growth remains robust, future growth prospects are what move a stock. Over the past sixty days, several Wall Street analysts tracked by Zacks Investment Research have lowered EPS expectations for 2026 and 2027.

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Upstart Exhibits Relative Weakness

Over the past year, UPST shares have sunk more than 60%, sharply diverging from the general market’s performance. For most investors, it’s best to avoid underperforming, broken stocks like UPST.

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Upstart Faces Growing Competition

Over the past few years, Upstart’s competition has increased dramatically. UPST faces increased competition from companies like SoFi (SOFI), Affirm (AFRM), and LendingClub (LC).

Bottom Line

Upstart’s AI-powered lending platform faces headwinds as a projected 2026 windfall tax refund season is expected to reduce consumer demand for personal loans among its core user base.

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This article originally published on Zacks Investment Research (zacks.com).

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