AI lending firm Upstart jumps as $2 bln funding crushes short sellers
May 10 (Reuters) - Shares of highly shorted Upstart Holdings Inc (UPST.O) are on track for their best day in more than two years, squeezing bearish investors, after the artificial intelligence-driven lending marketplace secured an additional $2 billion in funding.
The company's stock jumped 35% on Wednesday.
San Mateo, California-based Upstart, which uses AI to verify and process loans quickly, said it would receive the capital from new and existing partners over the next 12 months, helping the firm navigate an economic slowdown.
Analysts cheered the new funding, but added that the lack of details on deal terms prompted caution.
"While establishing these long-term funding partners is encouraging, it is unclear how much 'preferential economics' (Upstart) is giving up to these long-term committed partners," Wedbush analyst David Chiaverini said.
Upstart has lost 82% of its market value in the past 12 months due to a sharp drop in demand for new loans amid high interest rates and slowing economic activity.
About 37.5% of the company's free float was in short position. With the 32.8% gain in Upstart's shares on Wednesday, short sellers stand to lose about $122 million, according to analytics firm Ortex.
When there is a rush of demand from short sellers looking to exit bearish bets due to a rise in a stock's price, it pushes prices even higher, resulting in a short squeeze.
Wall Street has a bearish view on Upstart and the average rating of 14 brokerages covering the stock is "sell", while the median price target is $11.50, implying a 39% downside to the stock's current price, according to Refinitiv data.
The stock rose as much as $19.78 to hit a two-month high.
On an adjusted basis, the company posted a loss of 47 cents per share in the first quarter, compared with estimates of a loss of 81 cents per share.
Reporting by Medha Singh in Bengaluru; Editing by Saumyadeb Chakrabarty
Our Standards: The Thomson Reuters Trust Principles.
Source: Reuters
