Unity Software Inc Is in a Potential $793-Billion Market

Once upon a time, many years ago, the 3D technology market was all the rage. Then it stopped getting the same market interest as back then.

But now, with a renewed interest in building 3D content in digital applications, companies like Unity Software Inc (NYSE:U) have great potential.

The company offers an innovative software platform for the creation and operation of interactive, real-time 2D and 3D content. Its customers include architects, automotive designers, game developers, filmmakers, and other creators. (Source: “Corporate Overview,” Unity Software Inc, last accessed November 23, 2022.)

The global 3D technology market was worth $171.4 billion in 2020 and could grow to $793.4 billion by 2030. (Source: “3D Technology Market,” Allied Market Research, February 2022.)

Recent Selling of U Stock Presents Compelling Risk/Reward Opportunity

Unity Software stock traded as high as $210.00 in November 2021 prior to the selling of stocks in the technology space.

The emergence of a takeover bid from Applovin Corp (NASDAQ:APP) in August 2022 drove U stock up by 20%, but Unity Software Inc's rejection of that offer has led Unity Software stock to fall to about 20% below the takeover price.

Unity Software rejected the bid due to a condition that it drop its proposed acquisition of ironSource Ltd. (Source: “Unity Board of Directors Reaffirms Commitment to ironSource Transaction and Rejects Unsolicited Proposal from AppLovin,” Unity Software Inc, August 15, 2022.)

U stock has plummeted by 76% in 2022 and, as of this writing, the company has a market valuation of $14.0 billion.

While Unity Software stock's initial spike to its high was clearly excessive, its subsequent sell-off appears to have been overdone. At its current level, I see U stock as a compelling risk/reward opportunity.

Shares of Unity Software Inc are well below their 200-day moving average of $55.43 after the surfacing of a bearish death cross pattern in February.

Unity Software stock has rallied by 62% off its recent low of $21.22 to just above its 50-day moving average of $31.89.

Chart courtesy of StockCharts.com

U stock has strong and broad institutional ownership, with 712 institutions holding a 76.9% stake. (Source: “Unity Software Inc. (U),” Yahoo! Finance, last accessed November 17, 2022.)

Analyst Take

Unity Software Inc's share-price deterioration provides investors with an attractive risk/reward ratio.

In my view, the $17.5-billion value of the takeover bid from Applovin suggests there’s a wonderful opportunity in Unity Software stock following its sell-off.

Sustained upside moves could drive U stock toward its key $84.00 level that it reached in April prior to the sell-off. This represents a potential upward move of 147%.