Citi says threat to Keyword Studios from Generative AI 'likely overstated'

Citi stuck to its 'neutral' recommendation for Keywords Studios, telling clients that the risks around generative artificial intelligence struck them as "likely overstated".

"For what it is worth, it strikes us that some of the concerns about the long-term risk associated with generative AI - which are oft cited as the factor behind the recent aggressive derating - are likely overstated," they said in a research note sent to clients.

They did however slash their discounted free cash flow-based target price from 3,030p to 2,100p as they fine tuned their valuation model.

The specifics behind that reduction were the higher so-called Beta induced by rising rates and higher share price volatility and an increase in the discount rate from 8.5% to 10.0%.

"That our change in PT is so significant is an apt reminder of how much of KWS's value is in the medium- and long-term growth and that even a small change in discount rate can diminish its NPV."