By Hannah Pedone

The AI lending company says it's enhanced its model to better assess the risk of borrowers

Upstart beat revenue expectations on Tuesday.

Upstart Holdings said artificial-intelligence enhancements helped reaccelerate growth in its core personal-lending business during the latest quarter - and investors liked what they saw.

In the second quarter, the company worked to make its AI lending models better at separating low-risk customers from high-risk customers, according to CEO Paul Gu.

Those improvements look to have paid off in the period, driving Upstart shares (UPST) 13% higher in after-hours trading Tuesday.

Upstart reported $365 million in revenue for the second quarter, up 42% from the same period last year and beating the $362 million that analysts tracked by FactSet were expecting.

The company reported adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of $76.9 million, up 45% from the year-earlier quarter. Analysts tracked by FactSet were expecting $64.4 million.

While AI has been the hot market theme over the past year, Upstart has made it a part of its business since the beginning. There have been questions lately about whether AI broadly can deliver on its value proposition, but Gu said Upstart is using it "to do something that humans were frankly never very good at doing" - referring to the process of underwriting and verifying loans.

Shares of Upstart have fallen 33% this year, though they had climbed nearly 10% in the five trading days leading up to the earnings report. On Monday, Upstart reported that it had facilitated roughly $1.4 billion in total preliminary loan originations across 27.4 effective origination days, which averages out to $51 million per day.

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Personal loans are Upstart's most mature and profitable segment, though Gu said the company is continuing to build out its newer home and auto segments.

Upstart is also building a bank, having received preliminary approval from the U.S. Treasury Department's Office of the Comptroller of the Currency last month.

"We think the opportunities in home and auto, and building the bank, are fairly enormous," Gu said.

The CEO noted that private-credit partners are a key piece of Upstart's funding equation, and suggested that the company has benefited from issues on the more commercial side of private credit that have touched traditional technology companies.

"The credit is going to flow to the places where they've got confidence in the credit performance, and for us, that's meant more and more deals," Gu said. All of Upstart's private-credit partners have renewed their arrangements, he added, "generally signing longer-term deals, bigger deals, and we see that trend continuing because capital will flow to where credit is strong."

The company maintained its outlook for the full year of $1.4 billion in revenue and adjusted Ebitda of $294 million, which would be up 21% from the previous year.

-Hannah Pedone

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08-04-26 1822ET