Core Insights - Alger Weatherbie Specialized Growth Fund's second-quarter 2025 investor letter highlights the impact of trade policy uncertainty and subsequent market recovery, with the S&P 500 achieving a 10.94% gain by the end of Q2 [1] - The fund's Class A shares outperformed the Russell 2500 Growth Index during the same period [1] Company Highlights - Upstart Holdings, Inc. (NASDAQ:UPST) is identified as a key stock in the fund's portfolio, specializing in AI-driven lending solutions [2][3] - Upstart's stock experienced a one-month decline of 10.37% but saw a significant 57.72% increase over the past 52 weeks, closing at $62.38 with a market capitalization of $6.002 billion on September 23, 2025 [2] - The company reported strong fiscal-first quarter results, with stable credit quality and growth in new lending products, including auto loans and home equity lines of credit (HELOCs) [3] - Management raised its full-year guidance slightly, although they expressed caution regarding ongoing economic uncertainty [3]

Group 1 - The Federal Reserve cut its benchmark rate by 25 basis points on September 17, marking its first rate cut of 2025, with two more cuts expected by year-end, matching the three cuts in 2024 [1] - Lower interest rates can lead to increased lending activity for traditional banks but will reduce their net interest income, making savings accounts and CDs less appealing [2] - Despite challenges for traditional banks, there are financial stocks like Upstart, Robinhood, and S&P Global that may benefit from declining interest rates [3] Group 2 - Upstart operates as a lending marketplace that uses AI to approve loans based on non-traditional data points, allowing it to approve a wider range of loans [4] - Upstart generates most of its revenue from referral fees rather than interest on loans, positioning it to benefit from increased loan applications as interest rates decline [5] - After struggling in 2022 and 2023 due to rising interest rates, Upstart's growth accelerated in 2024, and the Fed's rate cuts are expected to provide strong tailwinds for its business [6] - Analysts project Upstart's revenue and adjusted EBITDA to grow at CAGRs of 36% and 245% from 2024 to 2027, driven by declining interest rates and an increase in "super prime" borrowers [7] - Other companies like Robinhood and S&P Global are also expected to see increased activity and growth as interest rates decline [8]

Core Viewpoint - The Federal Reserve has cut the Fed funds rate by 25 basis points to 4% to 4.25%, marking its first rate cut of the year, aimed at supporting the job market amid growing downside risks in the labor market [2][3] Summary by Sections Federal Reserve Actions - The FOMC's decision to cut rates was widely anticipated, and the committee now expects two more rate cuts this year, with a long-term target of 3% for the Fed funds rate [3] Market Reaction - Following the announcement, the S&P 500 index initially rose but then lost approximately 1% during Chair Powell's press conference, ultimately finishing nearly flat, down 0.1% for the session [5] Company Focus: Upstart - Upstart, an AI-based consumer loan originator, experienced a 1.4% increase in stock price, benefiting from lower interest rates as demand for loans rises and approval rates improve [7] - In 2021, Upstart saw significant growth and profitability when rates were near zero, but faced challenges in 2022 as rates increased. The company has since improved its AI model and expanded into auto and home loans, achieving triple-digit percentage growth in these areas [8][9] - Upstart's Q2 results showed a 102% year-over-year revenue increase to $257 million, with a GAAP profit of $5.6 million, a significant turnaround from a loss of $54.5 million in the same quarter last year [9] Future Outlook for Upstart - While Upstart's business may not return to 2021 levels soon, it operates in a multi-trillion-dollar addressable market and is well-positioned to benefit from falling interest rates, which will expand its market potential [11][12] - With a market cap of less than $7 billion, Upstart has substantial upside potential as it continues to enhance its credit risk assessment model [13]

Group 1: Artificial Intelligence Investment Opportunities - The investment landscape in the artificial intelligence (AI) sector is broadening beyond established companies like Nvidia, Broadcom, and Microsoft [1] - Demand for data center hardware, particularly from Nvidia, is surging due to the increased computing power required by new AI models [1] Group 2: Upstart Holdings - Upstart has developed an AI-driven algorithm that evaluates 2,500 data points for each borrower, allowing for automated loan approvals 92% of the time [5] - The company originated 372,599 loan approvals in Q2 2025, a 159% increase year-over-year, with a total loan value of $2.8 billion, marking a three-year high [6] - Revenue for Upstart reached $257 million in Q2 2025, a 102% year-over-year increase, and is projected to exceed $1 billion in annual revenue for the first time this year [7][8] - Upstart's CEO anticipates that AI will replace human-led loan assessments within a decade, potentially accessing a $25 trillion annual origination market and generating $1 trillion in annual fee revenue [9] Group 3: DigitalOcean - DigitalOcean focuses on serving small and midsize businesses (SMBs) in the cloud computing sector, offering affordable pricing and personalized service [10] - The company provides a range of services for SMBs, including data storage, website hosting, and AI software deployment, utilizing Nvidia-powered data centers [11] - DigitalOcean launched an AI platform called Gradient, which includes tools for developing AI software and ready-made large language models [12] - The company is projected to generate up to $890 million in revenue in 2025, with AI revenue growing over 100% year-over-year in Q2 [13] - DigitalOcean's stock is currently trading at a price-to-sales ratio of 4.3, significantly below its average of 8.5 since going public, presenting a potential investment opportunity [14]

Core Insights - Artificial intelligence is significantly transforming the fintech industry, creating opportunities for firms that effectively utilize data, automation, and predictive models to improve customer outcomes [1] - Intuit Inc. and Upstart Holdings represent two distinct approaches to leveraging AI in financial services [1][3] Intuit Overview - Intuit is building a comprehensive platform through its ecosystem, which includes QuickBooks, TurboTax, Credit Karma, and Mailchimp, targeting consumers, small businesses, and professionals [2] - The company reported a total revenue growth of 16% in fiscal 2025 and projects a growth of 12-13% for fiscal 2026, indicating strong confidence in sustained growth [4] - Intuit is focusing on unifying its offerings into an all-in-one financial operating system, with significant traction in the mid-market segment, which has an $89 billion total addressable market [5] - TurboTax Live saw a 47% increase in adoption in 2025, while Credit Karma grew by 32%, showcasing the effectiveness of AI in enhancing customer engagement [6] - Despite challenges tied to small business health and consumer spending, Intuit's strategy emphasizes resilience and consistent growth through data consolidation and technology investment [7] Upstart Overview - Upstart aims to revolutionize consumer lending with its AI-driven credit underwriting model, targeting a broad market by underwriting 100% of Americans [8] - The proprietary AI model, "Model 22," has improved underwriting accuracy and borrower acquisition efficiency, leveraging a unique dataset of over 91 million repayment events [8] - Upstart is rapidly expanding its product offerings beyond personal loans into auto refinancing and home equity lines of credit, significantly increasing its total addressable market [9][10] - The company has reduced delinquency rates by up to 32% through machine learning improvements, enhancing loan performance and borrower experience [11] - Upstart's innovative approach positions it as a disruptive force in the lending industry, with a focus on scaling its AI capabilities across various financial products [12] Financial Performance and Valuation - The Zacks Consensus Estimate projects Intuit's fiscal 2026 sales to increase by 11.90%, while Upstart's 2025 sales are expected to rise by 51.36% [13][14] - Intuit shares are trading at a forward Price/Sales ratio of 8.49X, while Upstart is at 5.37X, both below their one-year medians [17] - Over the past six months, Upstart's shares have outperformed those of Intuit and the S&P 500 composite [18] Investment Considerations - Intuit is recognized for its scale, ecosystem synergies, and reliable growth, making it a stable choice in financial software [21] - Upstart presents a more compelling investment opportunity due to its rapid product diversification and disruptive potential in the lending market [21] - Current rankings indicate Intuit holds a Zacks Rank 3 (Hold), while Upstart has a Zacks Rank 2 (Buy) [22]

Group 1 - The core idea is that while major companies dominate the AI investment landscape, smaller firms like Upstart are well-positioned to capitalize on AI within their niche markets [1] - Upstart's shares are currently trading 84% below their peak in 2021 but have seen a 75% increase over the past year and a 123% rise over the last three years, indicating a recovery trajectory [2] - The company utilizes a proprietary AI model to analyze over 2,500 variables about potential borrowers, aiming to enhance credit access [3] Group 2 - Upstart has returned to growth after facing challenges in 2023 due to rising interest rates, with revenue and loan volumes increasing by 84% and 121% respectively in the first half of 2025 [4] - The launch of Upstart's home equity line of credit (HELOC) product has led to a 750% year-over-year increase in originations in Q2, highlighting significant demand and a large untapped market of over $30 trillion in home equity in the U.S. [5] - The company has successfully navigated rising interest rates and is poised for future growth, potentially becoming a much larger entity by the end of the decade [6] Group 3 - Upstart's shares have performed well over the past year, with revenue increasing by 84% and loan volumes more than doubling, reflecting growing investor confidence [8] - The total addressable market (TAM) for Upstart, encompassing personal, small business, auto, and home loans, exceeds $3 trillion in annual origination volume in the U.S., indicating a vast opportunity for the company [9]

Company Overview - Opendoor Technologies (NASDAQ: OPEN) experienced a remarkable stock surge of 1,400% over the last three months, rising from approximately $0.50 to over $10 per share at its peak [1] - The stock's rally was initially fueled by hedge-fund manager Eric Jackson's comparison of Opendoor to Carvana, which saw a dramatic price increase after a near bankruptcy [2] Recent Developments - The stock gained momentum due to real news, including the potential for the Federal Reserve to lower interest rates and a significant management overhaul, with CEO Carrie Wheeler stepping down and Kaz Nejatian from Shopify being appointed as the new CEO, resulting in an 80% stock increase [3] - Co-founders Keith Rabois and Eric Wu rejoined the board, and associated ventures invested $40 million into Opendoor, further boosting investor enthusiasm [4] Business Performance - Despite the stock surge, Opendoor has not reported a full-year profit, and the business is expected to contract in the current quarter due to a weak housing market, indicating ongoing risks associated with its business model [5] Comparison with Upstart Holdings - Upstart Holdings (NASDAQ: UPST) shares similarities with Opendoor, having gone public around the same time and experiencing a similar trajectory in stock performance [7] - Upstart operates as a loan originator utilizing AI technology for applicant screening, which has proven effective even in high-interest-rate environments, suggesting a more stable business model compared to Opendoor [8]

Company Insights - Upstart (UPST) is an AI lending platform that assists banks in making better and faster lending decisions [4] - Over the past year, UPST shares have increased by 78%, but with significant volatility, experiencing 74 moves of 5% or more [4] - The stock price has fluctuated between a high of $96.43 in February and a low of $31.40 in April [4] Financial Projections - MarketWatch projects Upstart to earn $1.65 per share in 2025, $2.44 in 2026, and $3.06 in 2027, indicating an 85% increase over the next two years [6] - The expected price movement over the next nine days is $5.12 (8.2%), with a breakeven price of $56.81, allowing for potential profitability [6] Options Activity - On Wednesday, there was significant unusual options activity with 1,302 options traded, split 65/35 between calls and puts, indicating a bullish sentiment [1] - There were 459 unusually active put options, which could yield outsized returns for aggressive investors [2] - Specific put options with Volume-to-Open-Interest ratios over 10 could generate annualized returns exceeding 70% by selling the puts [3]

Group 1: Company Performance - Upstart Holdings, Inc. (NASDAQ:UPST) experienced a significant decline of 9.43% on Wednesday, closing at $62.42, ending a four-day winning streak [1] - Upstart's net interest income fell by 13.77% in Q2 to $45.6 million from $52.88 million year-on-year [3] - Despite the drop in net interest income, Upstart swung to a net income of $5.6 million from a net loss of $54.57 million in the same period last year, with total revenues more than doubling to $257.29 million from $127.63 million year-on-year [3] Group 2: Market Competition - Klarna Group PLC's market debut put pressure on Upstart and other competitors, as it opened at $57.2 and ended the day up 14.55% at $45.82, raising concerns about increased competition in the lending industry [2] - The entry of Klarna into the US market is seen as a factor contributing to heightened competition among "buy now, pay later" companies [2]

Group 1 - Klarna Group made its market debut with stock opening at $52, above the IPO price of $40 per share [1] - The debut is impacting fintech peers, causing pressure on Upstart Holdings Inc and Affirm Holdings Inc shares [1] Group 2 - Upstart Holdings Inc stock is down 10.4% at $61.75, ending a four-day win streak, despite an 83.7% year-over-year gain [2] - The stock has decreased by 21% over the last nine months and is testing support at the $60 level [2] - Options trading for Upstart is significantly higher than usual, with 129,000 calls and 93,000 puts traded [3][4] Group 3 - Affirm Holdings Inc shares are down 4.9% to $84.09, marking its third loss in four sessions [5] - The stock has increased by 39.2% in 2025 but is retreating from a three-year high of $100 [5] - A new support level is emerging at $80, with the 20-day moving average trending higher since late April [5] Group 4 - Options traders are leaning bearish on Affirm, with a 50-day put/call volume ratio of 1.19, higher than 95% of annual readings [6]