Upstart stock drops 23% on AI loan fears

Upstart’s stock sank 23% in July as investors fled AI-driven lending and SaaS stocks amid rising interest rates and fears that agentic AI could replace software services. The company, which uses machine learning to underwrite loans, saw its shares drop sharply even though it posted strong second-quarter results. The sell-off reflects broader market worries about the long-term role of AI in financial services and the sustainability of growth for tech-heavy lenders.

The drop continues a years-long struggle for Upstart. After a steep fall in 2022 when higher interest rates throttled loan demand, the company has slowly rebuilt its business. Second-quarter revenue rose 42% year-over-year to $383 million, and net income nearly tripled to $16.5 million. Yet investor confidence remains fragile because Upstart still swings between profits and losses under standard accounting rules. Rising borrowing costs also threaten its core market of personal and auto loans.

Analysts say the bigger risk is agentic AI, which can automate decisions without needing human-run software like Upstart’s platform. The company argues it remains ahead: it claims its model has been 2.74 times more accurate than traditional underwriting over eight years. Still, investors appear unconvinced. Upstart’s stock is down more than 50% from its 2021 peak and has failed to regain its former momentum despite expanding into home equity loans and reducing approval times to six days. In the second quarter alone, secured auto and home originations surged 218% year-over-year.

Upstart insists it can keep growing. Management forecasts a 40% revenue jump this year and a 35% annual growth rate through 2028. It has also lined up new funding partners to back its loans. Yet until interest rates fall or AI proves less disruptive than feared, the stock may stay under pressure. For now, Upstart’s mix of growth and volatility has left investors uneasy, and the July plunge shows just how sensitive the market remains to both macro trends and AI’s evolving role.