Sell Upstart as rising rates weaken borrowing demand, Morgan Stanley says

Rising interest rates and a troublesome macroenvironment mean it’s time to sell Upstart , Morgan Stanley says. Analyst James Faucette downgraded shares of the artificial intelligence lending platform to underweight from equal weight, saying in a note to the clients Wednesday that the current environment is hurting Upstart’s growth trajectory. “Deteriorating relative underwriting performance and increasing required returns from institutional partners have shifted our view incrementally negative, and we see downside risk to estimates and valuation as the platform’s cyclicality is tested,” he wrote. Upstart benefited in 2021 from low-interest rates and strong credit performance. But a daunting macroenvironment has led to rising rates on the platform, weakening demand for borrowing. “Going forward, we think the current macro backdrop will drag on the growth trajectory of UPST’s funding channels, impairing UPST’s efforts to scale, and signaling downside risks to estimates and valuation,” he wrote. Shares of Upstart have already plummeted 91% from their 52-week high and are down more than 76% since the start of the year. Morgan Stanley also slashed its price target on the stock to $19 a share from $88, representing a potential 47% downside from Tuesday’s close. Shares of Upstart fell more than 9% in premarket trading. — CNBC’s Michael Bloom contributed reporting

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