Artificial intelligence loan firm surges as $2 billion funding crushes short sellers

Shares of heavily shorted Upstart Holdings Inc are at their best in more than two years, squeezing bearish investors after the artificial intelligence-based lending marketplace raised $2 billion in additional funding.

The company’s stock rose by 35 percent on Wednesday.

The San Mateo, Calif.-based Upstart, which uses artificial intelligence to quickly review and process loans, said it will raise capital from new and existing partners over the next 12 months to help the company weather the economic slowdown.

Analysts welcomed the new funding, but added that the lack of details on the terms of the deal led to caution.

“While the establishment of these long-term funding partners is encouraging, it is unclear how much the ‘privileged economy’ (Upstart) will give up for these long-term committed partners,” Wedbush analyst David Chiaverini said.

The upstart has lost 82% of its market value over 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 listed stock was in a short position. With Upstart shares up 32.8% on Wednesday, short sellers are losing about $122 million, according to analytics firm Ortex.

When there is demand from short sellers who want to get out of bearish bets due to a rise in the stock price, it pushes prices even higher, leading to a short squeeze.

Wall Street has a bearish view on Upstart, with an average rating of “sell” among 14 brokers covering the stock, while the median price target is $11.50, representing 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.

The loss per share of adjusted earnings was 47 cents in the first quarter, when the estimate was a loss per share of 81 cents.

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