We recently published a list of 10 Best Mid Cap AI Stocks to Buy Now. In this article, we are going to take a look at where Upstart Holdings, Inc. (NASDAQ:UPST) stands against other best mid cap AI stocks to buy now.
In 2025, the technology companies continue to focus on developing AI platforms that meet their enterprise customers’ needs for optimized performance, profitability and security, says Morgan Stanley. In doing so, they have been partnering throughout the AI ecosystem of chips companies, hyperscalers, large language models, and data and software companies while grappling with the US trade policy unknowns and resource constraints. The firm believes that the top trends in new AI frontiers and the emphasis on enterprises consist of AI reasoning, cloud migrations, custom silicon, systems to measure AI efficacy, and developing an agentic AI future.
Key Themes Likely to Shape the Industry
Morgan Stanley, while quoting executives from companies designing and making chips, stated that AI reasoning happens to be one of the biggest drivers of higher compute demand, and thus, semiconductors. Notably, AI reasoning goes over and above the basic understanding and into advanced learning and decision-making, which needs additional compute for pre-training, post-training, and inference. As per Marco Lagos Morales (Head of U.S. Semiconductor Investment Banking at Morgan Stanley), for chip companies, customer demand remains in the breadth of AI workloads for programmable infrastructure.
The next theme revolves around LLMs seeing potential in AI reasoning for enterprises. Morgan Stanley highlighted that companies that have developed the world’s biggest LLMs focus on using the most effective chips and building the best software to provide AI services that become critical for companies and consumers. As per LLM executives, while the early use cases for LLMs revolved around content generation, summarization, and classification, the biggest untapped potential is in AI reasoning for the enterprise data.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Software Companies Focusing on Agentic AI, Says Morgan Stanley
The software executives mentioned regarding their current use of AI for the purposes of productivity gains in marketing and engineering and their longer-term prospects in a bid to gain market share in an agentic computing future. Morgan Stanley further highlighted that such companies continue to aim to create large systems deploying AI agents to make decisions, take autonomous actions, and adapt to dynamic environments for real-world applications throughout various industries. According to Brittany Skoda, Global Head of Software Banking, software companies continue to compete to create larger operating systems that harness machine learning, natural language processing, LLMs, GenAI, and decision-making algorithms to move towards an agentic future.
Our Methodology
To list the 10 Best Mid Cap AI Stocks to Buy Now, we used a screener and sifted through several media reports to shortlist the mid-cap companies catering to the AI industry. Next, we selected the stocks that are the most popular among hedge funds. We have mentioned the hedge fund sentiment around each stock, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of a businesswoman using a laptop, being illuminated by the AI-enabled cloud interface sponsored by the company.
Upstart Holdings, Inc. (NASDAQ:UPST)
Market Cap as of March 27: $4.76 billion
Number of Hedge Fund Holders: 39
Upstart Holdings, Inc. (NASDAQ:UPST) operates a cloud-based AI lending platform in the US. B. Riley analyst Hal Goetsch upped the company’s stock to “Buy” from “Hold,” boosting the price objective to $105 from $49. The analyst anticipates the company’s revenue growth to improve because of an improvement in the macro environment and a scalable fee-based model. Elsewhere, Citi analyst Peter Christiansen upped the price objective to $108.00 from the previous target of $87.00, while reiterating a “Buy” rating. This analyst highlighted that Upstart Holdings, Inc. (NASDAQ:UPST)’s AI had previously shown success in risk separation, a trend that can continue with the integration of its Upstart Macro Index (UMI) and Parallel Timing Curve Calibration (PTCC) models. Such enhancements focus on improving the company’s ability to adjust to macroeconomic factors.
Overall, the new price target from Christiansen demonstrated a positive outlook on Upstart Holdings, Inc. (NASDAQ:UPST)’s ability to leverage the enhanced AI models to fuel future growth and manage risk effectively in the dynamic economic environment. The company’s core competitive advantage revolves around the AI-driven underwriting models, which demonstrated the ability to more accurately assess credit risk versus the traditional methods. Fred Alger Management, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Upstart Holdings, Inc. (NASDAQ:UPST) is a leading AI-powered lending platform that partners with banks and credit unions to improve access to affordable credit. By leveraging machine learning algorithms, the company evaluates non-traditional risk factors to provide more accurate credit assessments, enabling better loan approvals and pricing. Upstart aims to make the lending process more inclusive and efficient while helping its financial institution partners drive growth and manage risk effectively. Shares contributed to performance during the quarter after the company reported solid fiscal third quarter revenues that beat analyst estimates. In our view, the quarter highlighted recovering origination volumes, product expansion efforts, improved funding partnerships, and a return to positive adjusted earnings-before-interest-taxes-depreciation-amortization (EBITDA). Management emphasized that the volume growth stemmed from updated underwriting models rather than new funding partnerships. Additionally, Upstart’s funding profile has significantly improved compared to a year ago, supported by forward flow partnerships and a successful return to the asset-backed securities (ABS) markets with tightening credit spreads.”
Overall, UPST ranks 7th on our list of best mid cap AI stocks to buy now. While we acknowledge the potential of UPST as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than UPST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
