Upstart's Partnership Expansion Fuels Growth Narrative, But Funding and Valuation Risks Linger

What happened

Upstart has announced new partnerships with Tech CU, Peak, and CAFCU, pushing its AI lending network past 100 partners and expanding offerings in personal, auto, and HELOC loans. This aligns with the company's recovery phase, as noted in the DeepValue report, with Q2 2025 showing profitability and improved automation. However, the report warns that valuation already embeds a meaningful recovery, and the business remains highly sensitive to external funding conditions, with 53% of H1 2025 loans dependent on institutional investors. The partnership growth may support volume and fee revenue, but it doesn't address the mix skew toward super-prime borrowers, which could compress unit economics and limit margin expansion. Overall, this development is incremental and reinforces scaling efforts, yet core risks around funding stability and credit performance persist unchanged.

Implication

For investors, the expansion of Upstart's partner network could lead to higher origination volumes and fee revenue, supporting near-term growth as the company scales its AI lending marketplace. However, the DeepValue report highlights that funding remains the primary swing factor, with over half of loans reliant on institutional buyers, making revenue vulnerable to capital market appetite and macroeconomic shifts. While broadening into auto and HELOC loans aids diversification, these segments are still nascent and face similar funding challenges, requiring sustained progress to de-risk the model. Valuation metrics like P/S ~6.3 already price in a robust recovery, limiting upside potential until profitability and funding durability are demonstrated through tougher conditions. Consequently, this news does not alter the investment case; investors should monitor for evidence of committed capital growth and stable credit performance before considering a stance change.

Thesis delta

The partnership expansion supports Upstart's strategy to scale its network and product offerings, which is a key element in its growth path and aligns with watch items in the DeepValue report. However, it does not directly address the core risks of funding dependency and credit performance that underpin the current HOLD recommendation. The thesis remains unchanged, as upside depends on sustained institutional capital, stable credit outcomes, and successful scaling of newer products like auto and HELOC.