Key Takeaways:
A securities class action lawsuit was filed against Upstart Holdings, Inc. (NASDAQ: UPST) over allegations that the company’s AI-powered lending model was flawed, prompting at least six Wall Street firms to slash their price targets on the stock.
"When analyst expectations are built on incomplete or misleading company disclosures, the resulting corrections can cause significant investor harm," Joseph E. Levi of Levi & Korsinsky, LLP, said. "The speed and magnitude of the UPST downgrades reflect how fundamentally the market's understanding of Model 22 changed on November 4, 2025."
Following Upstart's disclosure that its model was suppressing loan approvals, Morgan Stanley cut its price target by 36 percent to $45.00 and Goldman Sachs reduced its target by 26 percent to $40.00. Other firms including Needham, Citigroup, Bank of America, and Stephens & Co. also issued significant price target reductions. Shares fell 9.71 percent to $41.75 on November 5, 2025, after the company’s admission.
The lawsuit alleges that Upstart overstated the capabilities of its "Model 22" AI, which launched in May 2025. The company raised its full-year 2025 revenue guidance in August 2025 based on the model's purported success, but later revealed the model was "overreacting" to macroeconomic inputs, causing a drop in loan conversion rates to 20.6 percent in Q3 from 23.9 percent in Q2.
According to the complaint filed by law firms including Levi & Korsinsky and The Rosen Law Firm, Upstart made materially false or misleading statements about Model 22's accuracy. The lawsuit claims the company failed to disclose that the model’s overly conservative assessments were negatively impacting revenue, rendering its own financial guidance unrealistic.
The class period for the lawsuit extends from May 14, 2025, to November 4, 2025. Investors who purchased shares during this time may be eligible to join the action.
The sharp revisions from Wall Street analysts reflect a shift from a growth narrative to one focused on execution concerns. Before the corrective disclosure, the consensus revenue forecast for fiscal year 2025 was $1.06 billion. Upstart later revised its guidance down to $1.035 billion.
The downgrades show waning confidence in the company's ability to forecast its own performance, a critical issue for a business built on the premise of a predictive AI model.
The stock's decline after the November disclosure highlights the potential damages for investors who purchased shares at what the lawsuit claims were artificially inflated prices. The next catalyst for investors is the June 8, 2026, lead plaintiff deadline for the class action.
This article is for informational purposes only and does not constitute investment advice.
