Unity Software shares rise ahead of market on Morgan Stanley upgrade By Investing.com

Investing.com — Shares of Unity Software Inc (NYSE: ) rose in pre-market trading on Tuesday after Morgan Stanley upgraded its rating for the company to “overweight” from “equal weight”.

At 8:52 am (1252 GMT), Unity Software Inc. was trading 7.3% higher in pre-opening trades.

The brokerage’s review was driven by a combination of risky growth expectations and potential growth opportunities in Unity’s core business segments, sparking renewed investor interest.

“We now see clear upside revision potential in Create and greater stability in Grow,” Morgan Stanley analysts said.

The company faced a number of challenges, including underperformance relative to , significant management turnover and a major restructuring effort. These factors led to a substantial reset of market expectations.

The brokerage believes Unity’s forward estimates are now more achievable, “But following the cut in guidance from 24 to Q2 results, we now view U’s forward estimates as risky,” the analysts said.

One of the key elements that has underpinned this confidence is Unity’s resilience in maintaining its 70% market share in the mobile sector, a feat achieved even in the face of considerable competition and internal challenges.

This retention underscores the strength of Unity’s competitive moat and its enduring appeal in the gaming industry.

In addition to this stability, Morgan Stanley has identified several factors that could drive Unity’s growth in the coming years.

These include the potential for increased pricing power, the introduction of a running fee, and the continued rebuilding of Unity’s advertising algorithm. These developments could lead to upward revisions to Unity’s earnings forecasts for 2026 and beyond, positioning the company for stronger long-term performance.

From a valuation perspective, Morgan Stanley maintained its price target on Unity at $22, which represents a 32% upside to current trading levels. The brokerage also presented an optimistic scenario where the stock could reach as high as $45, underscoring Unity’s attractive risk-reward profile at the moment.

With shares currently trading near all-time lows in both price and valuation multiples, Morgan Stanley sees this as a compelling entry point for investors.