What Happened?

Shares of game engine maker Unity (NYSE:U) fell 10.3% in the afternoon session after the Nasdaq dropped 1.3%, marking its fourth consecutive day of losses, as investor concerns over the tech sector continue to mount. The downturn appears to be most pronounced in stocks heavily exposed to the AI market, with traders growing uneasy about stretched valuations and potential slowdowns in AI-related spending. 

Adding to the pressure, a lack of positive economic data has fueled broader uncertainty about the U.S. economy, particularly regarding consumer confidence and corporate investment trends. Investors are looking ahead to Nvidia's earnings report tomorrow, as the semiconductor giant is expected to provide crucial insights into AI demand and broader tech infrastructure spending. Given Nvidia's dominance in AI chips, its performance could set the tone for the entire sector. 

Separately, the trade debates are back after President Trump announced that the tariffs on Canada and Mexico will "go forward" when the temporary suspension expires in the coming week. This sparked fresh worries about supply chain issues and rising costs for companies that depend on cross-border trade, leading analysts to rethink the economic impact on affected industries. 

Markets remain volatile as investors await clarity on these key issues, with upcoming earnings and policy updates likely to shape sentiment in the days ahead.

The shares closed the day at $25.65, down 5.9% from previous close.

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What The Market Is Telling Us

Unity’s shares are extremely volatile and have had 37 moves greater than 5% over the last year. But moves this big are rare even for Unity and indicate this news significantly impacted the market’s perception of the business. The previous big move we wrote about was 5 days ago when the stock gained 25.3% on the news that the company reported impressive fourth-quarter earnings, which blew past analysts' revenue, EPS, and EBITDA expectations. However, revenue declined 25% year-on-year due to a portfolio reset (to focus on its core operations), with Create Solutions revenue plunging 47% and Grow Solutions revenue slipping 5%. Looking ahead, its revenue and EBITDA guidance for the next quarter fell well short of Wall Street's estimates. Still, this was a decent quarter, masked by the short-term impact of some business updates, including the new pricing model announced in 2024.

Unity is up 4.7% since the beginning of the year, but at $25.67 per share, it is still trading 22.3% below its 52-week high of $33.04 from February 2024. Investors who bought $1,000 worth of Unity’s shares at the IPO in September 2020 would now be looking at an investment worth $375.57.

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