BofA Said “Buy,” DraftKings Shares Went Up 5%

DraftKings shares rose about 5% after Bank of America upgraded the sports betting company from “Neutral” to “Buy,” pointing to the growing potential of prediction markets. Analyst Julie Hoover kept a $27 price target for DraftKings, which entered the prediction market scene after buying Railbird Technologies Inc. and its subsidiary Railbird Exchange one year ago in October, despite the company’s stock having fallen about 47% during that period. A Matter of Expectations The upgrade was largely tied to expectations for the company’s prediction market business, which Bank of America considers would become a significant source of revenue. The bank estimates DraftKings could generate around $40 million in prediction market fees in 2027 if the business remains viable. An additional $200-$400 million could come from market-making activities. DraftKings has reported rapid growth in its prediction market platform, with the company reporting that more than 600,000 customers had used DraftKings Predictions by August, according to the company’s second-quarter investment letter. Trading activity has also increased sharply, with annualized trading volume growing from $2.3 billion in April to $11 billion in July. Consumer trading accounted for $3.6 billion on an annualized basis, while market-making volume reached $7.4 billion. Bank of America lowered its 2026 EBITDA forecast for DraftKings from $635million to $500 million, citing the higher costs associated with building its prediction market business. However, the bank raised its 2027 EBITDA estimate from $1.05 billion to $1.15 billion. The revised forecast reflects expectations for stronger sportsbook performance as well as potential revenue from market-making. Important Context The upgrade comes as prediction markets become an increasingly important part of the US gambling and financial markets debate. Platforms such as Kalshi have expanded nationally under federal regulation, allowing them to offer event contracts in states where traditional online sports betting is not available. That model, as expected, has attracted lots of attention from sportsbook operators and investors. Prediction markets can operate under a different regulatory and tax structure from state-licensed sportsbooks, potentially giving them access to a wider customer base and different cost economics. DraftKings is now looking to capitalize on that opportunity while continuing to build its traditional sportsbook business. The company already has a large customer base and established trading infrastructure, giving it an advantage as competition in prediction markets increases. The business also comes with regulatory uncertainty, as sports-related event contracts have been drawing lots of criticism from some state regulators and gaming interests, who argue that they can closely resemble sports betting despite being offered as financial contracts. DraftKings is also facing separate legal scrutiny in Massachusetts over allegations that it used artificial intelligence to target gamblers with promotions. The lawsuit followed reporting about the company’s use of machine learning.