Upstart's AI Model 22 Overreaction to Macro Signals Choked Off Loan Approvals

Shareholders who purchased Upstart stock between May 14, 2025, and November 4, 2025, suffered losses after the company's AI lending model failed to perform as advertised. Upstart's stock price fell $4.49 per share on November 5, 2025, closing at $41.75. This decline followed the company's third-quarter earnings release and a downward revision of its full-year 2025 revenue guidance to approximately $1.035 billion, compared to a prior outlook of $1.055 billion.

Upstart reported Q3 2025 revenue of $277 million, missing its guidance of approximately $280 million. Executives attributed the shortfall directly to Model 22, the AI model launched in early May 2025. CEO Dave Girouard acknowledged that the model had reduced borrower approvals and conversion rates by taking a step toward conservatism in response to macro factors, suggesting the model may have been overreacting.

According to a federal securities lawsuit, Model 22 overreacted to negative macroeconomic signals, suppressing loan approvals and undermining revenue results. The lawsuit alleges that executives misled investors about the reliability of the model, touting its accuracy and positive impact on approval rates while concealing its tendency to overreact to macro signals.

Shareholders who purchased securities during the class period suffered losses.