Why Unity Software Stock Soared on Wednesday

Key Points

• Jefferies analyst Brent Thill raised his price target on Unity stock to $35 today.

• Ad spending in mobile games is on the rise, and Unity should benefit from this.

• Unity stock costs a lot but is growing free cash flow quickly.

• These 10 stocks could mint the next wave of millionaires ›

Unity Software (NYSE: U), a 3D graphics software specialist, rocketed 12.7% through 1:05 p.m. ET on Wednesday, and it's not hard to figure out why.

This morning, StreetInsider.com reported that Jefferies analyst Brent Thill raised his price target on Unity by more than 20% to $35 and reiterated his buy recommendation on the stock.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

What Jefferies says about Unity

Citing data from his company's 2Q mobile game ad tech survey, Thill said "overall 2025 ad spend expectations improved off of April" and are now on course for nearly 4% year-over-year growth. Unity's share of this market is growing and "incrementally positive," leading the analyst to raise his earnings estimates for the stock -- and accordingly, his price target.

Is Unity stock a buy?

Is this price target justified? Perhaps.

Unprofitable as calculated according to generally accepted accounting principles (GAAP), Unity does generate substantial positive free cash flow -- $308 million over the last 12 months. On a $14 billion stock, that works out to a 45x price-to-free-cash-flow valuation on the stock.

Expensive? Absolutely. And yet, the growth estimates for Unity stock are terrific and potentially terrific enough to make this stock a buy. Analysts polled by S&P Global Market Intelligence forecast Unity will more than triple its free cash flow (FCF) over the next five years to nearly $1 billion in 2030. If that's how things play out, the stock's seemingly excessive valuation could conceivably be justified.

Still, going from $308 million to just under $1 billion in five years works out to only a 26% annualized FCF growth rate. I'd prefer to see that go higher to justify the stock's 45x FCF valuation -- or for the stock to pull back a bit before buying any Unity stock myself.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $442,699!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $39,697!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $679,653!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, available when you join Stock Advisor, and there may not be another chance like this anytime soon.

See the 3 stocks »

*Stock Advisor returns as of July 14, 2025

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Unity Software. The Motley Fool has a disclosure policy.