Upstart Holdings, Inc. (NASDAQ:UPST) is an artificial intelligence (AI) -powered lending platform that seeks to upend traditional bank underwriting practices. In a good way. Upstart’s use of AI and machine learning offers big advantages to lenders. Consumers like it, too. Riding a wave of massive growth in revenue, UPST stock surged through much of 2021.

However, shares collapsed in value through the fall and only began a modest recovery in recent weeks. With UPST down 20% so far in 2022, the recovery has been tenuous. Is now the time to add Upstart shares to your portfolio? 

After what happened last year — when UPST stock gained 195% in two months only to give back those gains and more over the next three months — some investors are a little cautious about Upstart. In addition, economic factors have been spooking the market in 2022. Concern over higher rates has pushed down the price of many stocks this year. However, one of the reasons to think about investing in UPST stock is that this is a company that could actually see upside because of rising rates. Here’s how.

Higher Rates Are an Opportunity for Upstart 

As interest rates rise, people tend to become more concerned about debt. That makes sense — their debt becomes more expensive to service. Credit card debt in particular can become crushing. That drives demand for consolidation loans. This allows consumers to pay off their credit cards and other loans, refinancing the debt under a consolidation loan with a single payment at a lower rate. Consolidation loans are one of the biggest categories of personal lending offered by Upstart.

Even though credit card balances declined during the pandemic, with life returning to a new normal, they are beginning to creep up again. And those larger balances are going to be hit with an expected rise in credit card interest rates. The double-whammy is likely to send many consumers looking for alternatives.

In addition, Upstart advertises personal loans with rates that are 10% lower than those being offered by traditional lenders. When interest rates were at historic lows, people were less fussy about getting the absolute lowest rate possible. As interest rates begin to rise, the allure of borrowing from Upstart at a 10% discount will grow stronger.

Upstart reported revenue up 264% year-over-year in 2021. Rising interest rates have the potential to add to that growth momentum and could prove to be a tailwind for UPST stock.

Car Loans 

It is worth spiking out car loans when it comes to Upstart. In 2020, Upstart launched its AI-enabled auto lending platform. This product can be used not just to buy a new car, but also to re-finance an existing auto loan.

That line of business is set to benefit from two trends in the auto industry. With supply chain difficulties leaving stocks at all-time lows, auto dealers are looking for additional sources of revenue. One of the most profitable for them is to sign buyers to a car loan. In fact, some dealers have reached the stage where they are penalizing buyers who want to pay cash as they push signing up for a loan instead. 

As a result, Upstart is getting a lot more attention from dealers, who were piling aboard in 2021.  You can also expect an uptick in interest from consumers looking to refinance an existing auto loan at a cheaper rate. 

Adding fuel to that fire, the shortage of supply has meant the prices of new and used automobiles are at record highs. In December 2020, the average price of a new car in the U.S. topped $40,000. Just nine months later, it had hit $45,000. In January, it was reported that the average price of a used car was over $30,000. 

Expect UPST stock to have upside from an auto industry where few people will be able to pay cash for a car any more and where rising interest rates make bargain-hunting for car loans even more important. Upstart called attention to the auto loan segment in its February earnings, noting:

“[…] auto loan originations on our platform are now ramping quickly and will provide growth opportunities to Upstart for years to come.”

Bottom Line on UPST Stock

When Upstart reported its fourth quarter and full year 2021 results in February, the company issued full year guidance for revenue of $1.4 billion in 2022. That would represent an increase of 65% compared to 2021. However, that number might be conservative, considering the economic factors in play — including the ramp up of auto loans.

UPST stock has an “A” rating in Portfolio Grader.  At the end of January, I wrote that Upstart was attractively priced. It is currently up 38% from that time, but I still think it has plenty of runway. A recent upgrade by Citigroup resulted in a $350 price target for UPST. That represents an upside of over 130%.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.