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Investing.com - Morgan Stanley has reiterated an Overweight rating and $40.00 price target on Unity Software (NYSE:U) following Meta’s announcement that it will replace Unity’s runtime with its own Meta Horizon tool for AR/VR applications. Meta, currently trading near its 52-week high with impressive gross profit margins of 82%, continues to strengthen its position in the AR/VR space.According to InvestingPro analysis, Meta maintains a "GREAT" financial health score, with 15+ additional insights available to subscribers through detailed Pro Research Reports.
The investment bank notes that despite the superficially negative news, any significant stock pullback should be viewed as a buying opportunity, emphasizing that Unity does not monetize the runtime component and therefore faces zero impact on revenue or profit from Meta’s decision, which comes as Meta reports strong revenue growth of 19.4% in the last twelve months.
Morgan Stanley points out that Unity’s Engine editor remains interoperable with Meta’s new runtime and continues to be the leading AR/VR development platform, while the core Unity Engine editor is the component that generates revenue for the company.
The firm’s bullish outlook on Unity is primarily based on the company’s mobile gaming franchise and opportunities for the Vector ad engine, areas that remain completely unaffected by the changes in Meta’s AR/VR ecosystem.
Morgan Stanley also highlights that AR/VR represents only a small portion of Unity’s business, likely accounting for a low single-digit percentage of revenue and "essentially no profit," making it strategically interesting but not a material driver of earnings or growth.
In other recent news, Meta Platforms has been actively showcasing its advancements in AI technology. During its Connect event, Meta unveiled a new lineup of AI smart glasses, including the Meta Ray-Ban Display, which features an in-lens display overlay and an interactive neural interface. This development has attracted positive attention from analysts, with Stifel maintaining a Buy rating and a $900 price target for Meta. Similarly, Truist Securities also reiterated its Buy rating, setting a price target of $880, highlighting a positive outlook on Meta’s long-term growth prospects.
Citi has joined the ranks, reaffirming its Buy rating with a $915 price target, expressing optimism about the potential adoption of Meta’s AI glasses by 2026. Beyond product launches, Meta is reportedly in discussions with major media companies like Axel Springer, Fox Corp, and News Corp to license news content for its AI products. Meanwhile, Unity Software faced a setback as Meta announced it would replace Unity’s runtime engine with its own for app development. These developments illustrate Meta’s strategic focus on expanding its AI and smart glasses offerings while also exploring new content partnerships.
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