(Reuters) - Shares of highly shorted Upstart Holdings jumped 32% in premarket trading on Wednesday, squeezing out bearish investors, after the artificial intelligence-driven lending marketplace secured an additional $2 billion in funding.
The San Mateo, California-based company, which uses AI to verify and process loans quickly, said it would receive the capital from new and existing partners over the next 12 months, helping the firm navigate an economic slowdown.
A sharp drop in demand for new loans because of high interest rates and fears of a slowdown has hammered shares of Upstart, erasing 82% of their value in the past 12 months.
"(The) committed funding agreements are a concrete step towards stabilizing Upstart's business," said James Faucette, analyst at Morgan Stanley, raising its price target on the stock to $13 from $10.
However, Faucette warned of risks ahead related to uncertain economic conditions, the company's historically challenged credit performance, and a lack of visibility to profitability.
Wall Street has a bearish view on the company and the average rating of 14 brokerages covering stock is "sell", while the median price target is $11.50, implying an 18.4% downside to the stock's last close.
At current levels, short sellers stand to lose about $122 million, according to analytics firm Ortex. About 37.5% of its free float was in short position as of May 8.
"With the price in Upstart jumping up over 30% in the pre-market, some short sellers will try to close their positions... adding additional buy pressure on the stock," said Peter Hillerberg, co-founder of Ortex.
When there is a rush of demand from short sellers looking to exit bearish bets due to a rise in a stock's price, it pushes prices even higher, resulting in a short squeeze.
The company's net loss per share, excluding items, was 47 cents, beating analysts' estimates of 81 cents loss per share, according to Refinitiv.
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