The U.S. Federal Reserve maintained the benchmark interest rate for the third consecutive time. This signals that interest rates may have reached their peak, paving the path for rate cuts in the future. The expected decline in interest rates suggests that better days are ahead for consumer lending platforms like Upstart (NASDAQ:UPST) and SoFi (NASDAQ:SOFI).
Following the Fed’s announcement, UPST stock closed over 20% higher on December 13. Further, Upstart stock gained about 4.8% in Wednesday’s after-hours of trading. Meanwhile, SoFi stock increased 12.5% to close at $8.94.
Notably, 2023 posed challenges for these companies in terms of operating conditions. The prolonged high interest rates negatively affected loan originations, created difficulties in obtaining third-party funding, and increased the risk of borrower default. However, with anticipated rate cuts in 2024, Upstart and SoFi are poised to experience increased loan demand on their platforms. With this background, let’s look at the Street’s forecast for these financial technology companies.
What is the Outlook for UPST Stock?
Normalizing interest rates and risk levels will provide a multi-year tailwind for Upstart. The company will benefit from plenty of third-party capital to meet the borrower’s demand and leverage its balance sheet. However, UPST stock has gained over 231% year-to-date, which raises concerns about its valuation and suggests that positives are already reflected in its price.
UPST’s expensive valuation and macro concerns are why analysts are bearish about Upstart stock. With one Buy, five Hold, and five Sell recommendations, UPST stock has a Moderate Sell consensus rating. Further, analysts’ average price target of $21.56 implies 49.52% downside potential from current levels.
Is SoFi Stock Expected to Go Up?
SoFi has delivered solid financial performances so far this year, despite macro headwinds, as it leveraged its bank license to drive better economics. Further, the sustained momentum in personal loan originations and its growing deposit base allowed it to thrive even in a high-interest rate environment.
Nevertheless, a high-interest rate environment raises concerns over future loan originations. Thus, a reduction in interest rates will likely accelerate SoFi’s growth rate and drive refinancing volumes on its platform. However, analysts prefer to remain sidelined on SoFi stock as the stock has already gained quite a lot (nearly doubled) on a year-to-date basis.
With five Buy, six Hold, and two Sell recommendations, SoFi stock has a Hold consensus rating. Further, analysts’ average price target of $9.15 implies a limited upside potential of 2.35% from current levels.
