It has been more than two years since OpenAI released ChatGPT to the world. Given how much artificial intelligence (AI) continues to make headlines and grab attention, it's probably safe to say that this technology isn't going anywhere. In fact, it's likely to become even more important in the future.

Investors continue to look for ways to gain exposure to this trend. There's one surging AI stock that's up about 200% just in the past 12 months (as of Feb. 24). Should you buy it now while it's trading for less than $80 per share?

Upstart's positive momentum

Upstart Holdings (UPST -1.77%) , which uses AI to evaluate borrowers' creditworthiness for lenders like banks and auto dealers, impressed investors with its latest financial results. Revenue and transaction volume jumped 56% and 68%, respectively, year over year in the fourth quarter. Executives credit a stable economy, particularly from a lending perspective, in the back half of 2024.

The business also reported a net loss of $2.8 million under generally accepted accounting principles (GAAP). That compared quite favorably to a $42.4 million net loss in the fourth quarter of 2023. This was propelled by operating expenses rising by 19%, well below the revenue gain.

Management also provided an upbeat outlook for 2025. They expect record revenue of $1 billion, which would mark an impressive 57% increase from 2024. They also forecast breaking even in terms of GAAP.

The latest results and forecast point to a business that might be turning the corner from its challenges in recent years. It's no wonder the stock popped 32% after the release of the fourth quarter update.

Red flags

Upstart stock's big rise indicates just how pessimistic the market was toward the business -- positive financial results were a huge surprise. But investors must zoom out because it's important not to ignore what I believe are still some red flags.

I would argue that its performance is still cyclical, predicated on the trajectory of interest rates. While the prospects of lower rates (or at least rates staying the same) might be an encouraging trend, it's worrying that the company's success is still heavily dependent on factors beyond its control.

What happens in a recessionary scenario? Funding for Upstart-powered loans can dry up as credit markets tighten. And more borrowers will default on their loans. Both of these obviously aren't good things.

The company might produce positive net income in 2025. However, the lack of consistent profitability over an extended period of time tells me that it has yet to develop a sustainable business model. Maybe this will change as we look ahead. This is precisely what shareholders are banking on.

It's also worth mentioning Upstart's customer concentration. In 2024, three lending partners accounted for 63% of revenue. This puts the company at risk should it lose one of these partners for whatever reason. What's more, this setup could limit management's leverage when it negotiates fee terms, for example.

Rising expectations

At its 52-week low in August last year, the stock traded at a price-to-sales ratio (P/S) of 3.9. With the benefit of hindsight, this was a fantastic buying opportunity. Since then, the shares have more than tripled.

The current P/S sits at 10.8. In my opinion, this is a very steep valuation; it implies that Upstart can deliver on very rosy projections. This is far from a certainty. In other words, there is no margin of safety.

As someone who prioritizes valuation, I believe it's best to pass on buying Upstart stock, especially in light of the red flags mentioned. Growth-focused investors who want more exposure to AI in their portfolio might think differently, though. At the end of the day, it depends on your own investment philosophy.