Why Unity Software Stock Skyrocketed This Week

Unity Software (NYSE: U) stock closed out last week's trading with big gains thanks to bullish coverage from an analyst. The company's share price ended this Friday's trading up 25.7% from the previous week's market close.

On Friday, Jeffries published new coverage on Unity and upgraded its rating on the stock from hold to buy. Unity's share price also got a boost from bullish momentum for the broader market over last week's trading. The S&P 500 index ended the week up 1.9%.

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Jeffries turns bullish on Unity stock

Jeffries released a new note on Unity stock before the market opened on Friday, upgrading its rating on the stock to buy and raising its one-year price target from $22 per share to $29 per share. The investment firm sees signs that Unity's new Vector digital advertising is gaining traction and will help accelerate a turnaround for the business. Vector is using artificial intelligence (AI) to provide better ad targeting for games and applications built on Unity's development platform, and the company is positioning the new software as a key pillar of its comeback strategy.

What's next for Unity?

On the one hand, Unity is still in the relatively early stages of its turnaround effort, and the company could continue to see soft sales performance this year as it rolls out Vector and transitions customers to the platform. On the other hand, Jeffries thinks Vector will help power accelerating sales growth next year and beyond.

If the new software helps reposition the company as a stronger player in the app advertising market, Unity stock could climb well above current levels. It's too early to say whether that will be the case, but the stock could deliver big upside for risk-tolerant investors.

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Keith Noonan has positions in Unity Software. The Motley Fool has positions in and recommends Unity Software. The Motley Fool has a disclosure policy.