Insights

Why Upstart Stock Surged Today

What happened

Shares of Upstart Holdings (NASDAQ: UPST) surged by as much as 19.6% Wednesday. As of 2:23 p.m. ET, the stock was still up 15.5%.

The major market indexes were in rally mode, with a wide swath of stocks trading higher. While this trend no doubt contributed to the cloud-based AI lending platform’s rise, blockbuster second-quarter results from another fintech stock likely provided additional tailwinds.

So what

While a check of all the usual sources turned up no company-specific news that could be driving Upstart higher, the stock was likely moving in sympathy with SoFi Technologies (NASDAQ: SOFI), which reported better-than-expected financial results. In Q2, SoFi generated record net revenue of $362.5 million, up 57% year over year, and its adjusted EBITDA soared 81%. This resulted in a loss per share of $0.12. 

To give those results context, analysts’ consensus estimates were calling for revenue of $340.8 million and a loss per share of $0.14, so SoFi comfortably exceeded Wall Street’s expectations on both counts. Perhaps more telling were SoFi’s customer metrics: Its total members grew 69% year over year to 4.3 million, while total products used grew 79% to 6.6 million. 

In light of those results, management raised its full-year outlook, forecasting that adjusted net revenue would rise by roughly 50% to $1.51 billion at the midpoint of its guidance range.

Now what

So what does all this have to do with Upstart? Like many high-growth stocks with previously lofty valuations, Upstart has been hit hard in the bear market. Its stock is down by a whopping 92% from the peak it reached late last year, making it subject to big bounces.

To add insult to injury, Upstart stock got crushed when the company reported its first-quarter results in May. While its performance was admirable, management’s guidance for slowing growth sent the share price into a tailspin. It shed 56% of its value in a single day. With the benefit of hindsight, investors likely now view that as an overreaction, particularly in view of the strength of SoFi’s results. 

Finally, 35% of Upstart’s shares were sold short as of July 15. SoFi’s results and the upward momentum they contributed to Upstart may have helped ignite a short squeeze in the stock as investors moved to cover their short positions.

Danny Vena has positions in SoFi Technologies, Inc. and Upstart Holdings, Inc. The Motley Fool has positions in and recommends Upstart Holdings, Inc. The Motley Fool has a disclosure policy.

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