Startup stocks are likely to struggle as lending conditions deteriorate, according to JP Morgan. His $11 price target means he could fall 36% over the next year from Monday’s close. “We love the potential of UPST’s AI lending platform, but the long-term bullishness is likely to come from slowing originations, lower investor demand for subprime unsecured consumer credit, and losses on retained loans. In a note to clients on Tuesday, the stock fell 1.8% in premarket, but the stock is up nearly 30% in 2023, Smith said. called it shocking.UPST YTD Mountain Upstart Upstart has an artificial intelligence-driven two-sided marketplace that connects borrowers and lenders for greater credit access, approvals and more than traditional underwriting models. AI is “ideal” for credit decisions and increasing credit availability, Smith said, and Upstart has spent the past five years in engineering and product development. After spending more than $440 million, it said it had the most robust AI lending model within its coverage universe. Smith said the company has benefited from the pandemic stimulus driving lower default levels with other unsecured credit providers. Smith said he likes the long-term potential of the platform, but said it’s too cyclical right now and sensitive to funding partners. We advise against buying stocks until macro metrics, such as ‘s Upstart Macro Index, improve or management announces an expanded loan-financing strategy. “UPST is arguably the most macro-sensitive company in our coverage universe, given its mix of sub-prime and near-prime loans and its reliance on voluntary funding from its partners. It’s on the balance sheet,” he said. “He thinks the annual loss rate on the loans he holds could reach 20%,” — CNBC’s Michael Bloom contributed to this report.