Unity Software's (U) risk balance has improved as negative catalysts appear to be already priced into the company's valuation, BofA Securities said in a Tuesday note.

There is a reduced risk of further outlook cuts after Unity Software's weaker-than-expected Q1 guidance and the company's near-term catalysts seem "balanced," the brokerage said. These catalysts are Unity Engine's technology roadmap and the start of using run-time data in Q2 for ad targeting, BofA added.

Unity Engine's roadmap is expected to demonstrate its monetization potential and the use of run-time data could support the company's Q2 results and Q3 outlook, according to the investment firm.

"We do not believe generative AI poses an existential risk to Unity Engine," BofA also said, noting that AI models could complement game engines like Unity Engine instead of being used as substitutes.

BofA Securities upgraded Unity Software to neutral from underperform, with a higher price target of $19 from $18.

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