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Yahoo
2 days ago
- Business
- Yahoo
This AI Stock Just Crushed Palantir's Rule of 40 Score. Is It a Buy Now?
Key Points Palantir has delivered impressive growth on the top and bottom lines. Upstart's revenue more than doubled on strong loan origination growth. Some investors had concerns about the company's take rate. 10 stocks we like better than Upstart › Followers of Palantir (NASDAQ: PLTR) will know that the company likes to use the Rule of 40 as a performance benchmark. This standard in the software industry means that a company should have a combined revenue growth rate and free cash flow margin, or a similar profitability measure, of at least 40 in order to be investable. Palantir Chief Executive Officer Alex Karp hasn't been shy about touting the company's strong performance based on the Rule of 40, noting that it had a Rule of 40 score of 94 in its second-quarter report. That was made up of 48% revenue growth and 46% adjusted operating margin. There's no doubt that that's an impressive result and helps show why Palantir stock continues to soar. However, Palantir didn't have the best Rule of 40 score in the software sector this quarter. Upstart (NASDAQ: UPST), the artificial intelligence-based lending platform, beat Palantir in the Rule of 40. With revenue growth of 102% and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 21%, giving it a Rule of 40 score of 123. Unlike Palantir, which rose after its earnings report, Upstart actually tumbled despite that blowout Rule of 40 score. Should investors buy the dip on Upstart? Let's take a closer look. About Upstart's quarter A year after Upstart unveiled its improved screening model, Model 18, the company is delivering blistering growth, and that model has improved its conversion rates as the company predicted. Transaction volume jumped 159% to 372,599 loans approved, with a 23.9% conversion rate, meaning applications that became loans, up from 15.2% in the quarter a year ago. Revenue from fees, its core business, rose 84% to $241 million, and total revenue of $257.3 million was well ahead of the average analyst estimate at $225.4 million. Upstart impressed on the bottom line as well, as it flipped an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of $9.3 million to a profit of $53.1 million. It also reported a generally accepted accounting principles (GAAP) profit of $5.6 million, or $0.40 per share on an adjusted basis, up from a loss of $0.17, and better than the estimate of $0.25. Upstart's outlook was strong as well, as it raised its full-year forecast and third-quarter projection was ahead of expectations. However, the reason the stock fell, according to analyst commentary, was that Upstart's take rate shrank, a sign that it could be getting harder for the company to convert origination volume into revenue. In the second quarter, originations reached $2.8 billion, and revenue was $257 million, giving it a take rate of 9%, which was down from 12% in the quarter a year ago. Is Upstart a buy? Although the critique about the take rate may be valid, that seems to be a result of Upstart moving into the super prime loan market, where risk and default rates are typically lower, so it's worth the trade-off. Additionally, Upstart is just starting to tap the vast home and auto loan markets. Auto loan originations jumped more than sixfold from a year ago to $114 million, and home loans reached $68 million, up ninefold from the same quarter a year ago. Those categories are still small and contribute just a fraction of total revenue, but they have the potential to be huge in the future. Furthermore, Upstart's surge in revenue and return to profitability has come without any help from lower interest rates. If interest rates fall, demand for loans through its platform could soar even faster. Overall, the sell-off in Upstart looks worth taking advantage of given the rapid growth, improving profitability, and its opportunity in the home and auto markets. If you've been impressed with Palantir's recent results, Upstart is worth taking a look at. Should you invest $1,000 in Upstart right now? Before you buy stock in Upstart, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Upstart wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $653,427!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,119,863!* Now, it's worth noting Stock Advisor's total average return is 1,060% — a market-crushing outperformance compared to 182% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of August 4, 2025 Jeremy Bowman has positions in Upstart. The Motley Fool has positions in and recommends Palantir Technologies and Upstart. The Motley Fool has a disclosure policy. This AI Stock Just Crushed Palantir's Rule of 40 Score. Is It a Buy Now? was originally published by The Motley Fool
Yahoo
11-07-2025
- Business
- Yahoo
The Smartest Growth Stocks to Buy With $1,000 Right Now
Upstart Holdings leverages artificial intelligence (AI) to enhance loan decision-making and improve credit risk assessment. SoFi Technologies has evolved from a student loan refinancing company into a comprehensive financial services platform. Interactive Brokers is an electronic broker focused on tech-savvy investors, offering a wide range of financial products. 10 stocks we like better than Upstart › Long-term investing is an excellent way to build lasting wealth. Growth stocks can offer investors a means to capitalize on rapidly growing companies and reap the rewards as these companies expand and prosper. If you're searching for growth stocks to add to your portfolio, here are three to consider today. Upstart Holdings (NASDAQ: UPST) is a lender that leverages the power of artificial intelligence (AI) to enhance the loan decision-making process. The company aims to more accurately gauge credit risk and make borrowing more inclusive -- something it believes the traditional FICO scoring system (created by Fair Isaac) fails to do. While Upstart's lending model has shown promising results so far, one concern is that it is still in its early stages. Its credit model hasn't faced a significant test (such as a deep recession) since it went public in 2020, although it has faced other challenges during this time. The rising interest rate environment in 2022 and 2023 dampened demand from both consumers seeking loans and Upstart's lending partners. As a result, loan origination volume, revenue, and earnings all declined, and Upstart management took measures to decrease costs and streamline operations. Things have since improved for Upstart. For one, interest rates have stabilized. Second, the risk appetite has returned. Over the past couple of years, Upstart has attracted significant interest from partners willing to invest billions in its loans. Investors include Fortress Investment Group, which agreed to purchase up to $1.2 billion in loans through 2026, and Blue Owl, which has the option to purchase up to $2 billion in loans. Upstart's lending models continue to improve. According to management, Model 18, which launched in the third quarter of last year, was "one of the most impactful accuracy improvements in our history," which "means more approved borrowers, higher origination volumes, stronger lender relationships, and better business outcomes." With its models improving and investor appetite for its loans picking up, investors may want to consider buying Upstart today. SoFi's (NASDAQ: SOFI) transition over the past decade has been remarkable. After starting as a company that helped people refinance their student loans, SoFi has evolved into a comprehensive financial services platform, offering customers a range of services, including banking, investing, insurance, and loans. One advantage SoFi has is that it offers banking-as-a-service, which enables fintech companies to create, launch, and run digital financial products without being a bank. With investments in its technology stack, including Galileo and Technisys, SoFi aims to be the "Amazon Web Services of finance" by providing essential back-end services and a cloud-native digital and core banking platform. In the first quarter, SoFi's Technology Platform served over 158 million accounts and processed over $8 billion in annualized transactions. SoFi's deposit base has grown at a very impressive pace from $7.3 billion in 2022 to over $27 billion in the 2025 first quarter. SoFi's ability to utilize deposits to fund loans generally results in a lower cost of funds compared to other financing methods, such as warehouse and securitization financing. This shift toward deposit funding has reduced SoFi's funding expense by an estimated $515 million per year. SoFi has made significant moves in recent years to diversify its revenue and establish itself as a complete financial services company. The company continues to deliver positive quarters and experiences strong demand for personal loans from its lending partners. Interactive Brokers (NASDAQ: IBKR) is an electronic broker offering a trading platform with a strong focus on serving tech-savvy investors. The company offers a wide range of products on its platform, including stocks, options, futures, currencies, bonds, mutual funds, ETFs, event contracts, and cryptocurrencies. The company uses its highly automated platform to be one of the lowest-cost broker-dealers in the industry. As a result, the company can attract sophisticated, active investors to its trading platform, saving them money. Its commitment to automation is evident in its senior management, which is mainly composed of software engineers. This commitment to automation, achieved through technology developed in-house by leading computer programmers, enables it to provide high-speed trade execution at low commission rates. Thanks to its highly automated platform, Interactive Brokers boasts industry-leading margins that surpass both traditional financial services and fintech companies. In 2024, its adjusted pre-tax profit margin was 72%. Given its cost advantage and excellent margins, Interactive Brokers is another stellar growth stock for investors to consider buying today. Before you buy stock in Upstart, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Upstart wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $674,432!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,005,854!* Now, it's worth noting Stock Advisor's total average return is 1,049% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of July 7, 2025 John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Interactive Brokers Group, and Upstart. The Motley Fool recommends Fair Isaac and recommends the following options: long January 2027 $175 calls on Interactive Brokers Group and short January 2027 $185 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy. The Smartest Growth Stocks to Buy With $1,000 Right Now was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
09-05-2025
- Business
- Yahoo
Upstart Aced Earnings but Still Got Crushed. Time to Buy the Dip?
Upstart delivered strong first-quarter results, but the stock still sold off. Revenue growth accelerated to 67%, and the company nearly reported a GAAP profit. Auto and home loans are growing rapidly. 10 stocks we like better than Upstart › Investors came in to Upstart's (NASDAQ: UPST) first-quarter earnings report hoping the company would maintain its momentum from the end of last year. Its growth has accelerated thanks to a new artificial intelligence (AI) model, Model 18 or M18, that has significantly improved its conversion rate thanks to an even broader prediction set that includes approximately 1 million predictions per applicant, or six times its prior model. With those tailwinds behind it, Upstart's results in Q1 did not disappoint. Revenue jumped 67% to $213.4 million, which topped estimates at $201.3 million. Those results included 34% growth in revenue from fees to $185.5 million, and Upstart benefited from a decline in fair value adjustments on its loans, indicating better credit performance. Underlying growth in its business was especially impressive as loan originations rose 102% to 240,706 loans, and total originations jumped 89% to more than $2.1 billion. The conversion rate continued to improve, rising from 14% to 19.1%, all signs that adoption is growing rapidly. Its metrics on the bottom line also improved. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from a loss of $20.3 million to a profit of $42.6 million. It nearly reported a generally accepted accounting principles (GAAP) profit, finishing the quarter with a loss of $2.4 million, up from a loss of $64.6 million in the quarter a year ago. It reported an adjusted per-share profit of $0.30, ahead of the consensus at $0.17, and up from an adjusted per-share loss of $0.31 in the quarter a year ago. Despite the strong Q1 earnings report, Upstart essentially reiterated its full-year guidance untouched as it guided to revenue of $225 million for Q2, below the consensus at $226.3 million. Wall Street tends to see a beat without a raise as a sign that the current momentum won't last, and investors sometimes punish growth stocks for that pattern. As a result, the stock was down 16% in after-hours trading on Tuesday. While management did acknowledge the uncertainty in the economy, there wasn't anything in the guidance to indicate weakness. Meanwhile, a number of indicators in the business showed it continuing to strengthen. Upstart has diversified its business away from unsecured consumer loans in recent years as auto loans grew by five times to $61 million in the quarter and up 42% from Q4. Home loan origination jumped six times to $41 million, and management noted on the earnings call that its lending partners greatly prefer secured loans to unsecured loans, which bodes well for continued growth in the business. Prior to the earnings release, the company announced a one-year strategic partnership with OnePay, a fintech majority owned by Walmart. Upstart said the partnership would help it market lending product to Walmart's customer base, a massive opportunity for the company. It also plans to offer co-branded products without OnePay, though it said it didn't expect the partnership to have a material impact on financial results this year. Additionally, Upstart announced a forward-flow commitment from Fortress Investment Group, which agreed to purchase up to $1.2 billion in loans originated on Upstart, which will further diversify the company's base of lending partners and help ensure adequate funding for its loans. If the after-hours sell-off holds, Upstart now trades at a forward price-to-earnings (P/E) ratio of just 31 based on adjusted earnings, and that number is likely to fall as analysts up their forecasts following the strong quarter. Meanwhile, Upstart's revenue growth and the tailwinds in the large auto and home loan markets show it still has a significant growth runway in front of it. Upstart's own proprietary data even shows the macroenvironment improving modestly, and the business is less at risk of turmoil in the credit market than it was in 2022 when interest rates surged, freezing borrower demand. With interest rates already high and Upstart's business now resilient, the company seems to be in good shape no matter what happens on the macrofront. A recession could even be a positive for the company as it could lower interest rates. Overall, Upstart's business is getting stronger, its technology is improving, and the valuation looks attractive. The company also has scheduled an "AI day" when it will present technology updates and discuss its business model and strategy. Before you buy stock in Upstart, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Upstart wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $717,471!* Now, it's worth noting Stock Advisor's total average return is 909% — a market-crushing outperformance compared to 162% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 5, 2025 Jeremy Bowman has positions in Upstart. The Motley Fool has positions in and recommends Upstart and Walmart. The Motley Fool has a disclosure policy. Upstart Aced Earnings but Still Got Crushed. Time to Buy the Dip? was originally published by The Motley Fool
