Zillow's (ZG) stock faces a persistent artificial intelligence-related overhang despite limited underlying business risk, RBC Capital Markets said.

The investment firm said in a Tuesday note that LLM product innovation, along with increasingly sophisticated agentic aggregation capabilities from Alphabet's (GOOG, GOOGL) Google, is likely to remain an overhang for digital marketplaces in the foreseeable future.

RBC said Zillow's traffic risk from the overhang is low and the actual business impact is even lower. It estimates profit exposure at just 1% to 4% in a worst-case scenario, assuming indirect traffic between 15% and 20%. However, it noted that a more appropriate discounting of AI's potential deflationary effect on internet marketplaces is warranted.

The overhang lowers the ceiling for what investors will pay for internet companies with exposure to horizontal user acquisition, analysts said.

RBC has an outperform rating on the company stock and lowered its price target to $70 from $95.

Shares of Zillow were down nearly 2% in Wednesday trading.

Price: 35.15, Change: -0.68, Percent Change: -1.90