Bank of America upgrades DraftKings to Buy on prediction market potential; shares rise about 5%

Shares in DraftKings rose about 5% after Bank of America upgraded the sports betting operator from Neutral to Buy. Analyst Julie Hoover kept the price target at $27. The upgrade was tied largely to expectations for the company's prediction market business, which the bank sees becoming a significant source of revenue.

DraftKings entered prediction markets in October last year through its purchase of Railbird Technologies Inc. and its subsidiary Railbird Exchange. Over that period the company's stock has fallen about 47%. Bank of America estimates the business could generate around $40 million in prediction market fees in 2027, provided it remains viable, with a further $200 million to $400 million possible from market-making activities.

The company has reported fast growth on the platform. According to its second-quarter investment letter, more than 600,000 customers had used DraftKings Predictions by August. Annualized trading volume rose 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.

The bank cut its 2026 EBITDA forecast for DraftKings from $635 million to $500 million, pointing to the higher costs of building the prediction market operation. It raised its 2027 EBITDA estimate from $1.05 billion to $1.15 billion, reflecting expected stronger sportsbook performance and potential market-making revenue.

The upgrade comes as prediction markets feature more prominently in the US debate over gambling and financial regulation. Platforms such as Kalshi have expanded nationally under federal oversight, offering event contracts in states without traditional online sports betting. These products can operate under a different regulatory and tax structure from state-licensed sportsbooks, which may give them a wider customer base and different cost economics.

The segment also carries regulatory uncertainty. Some state regulators and gaming interests have criticized sports-related event contracts, arguing that they closely resemble sports betting even though they are offered as financial contracts. Separately, DraftKings faces legal scrutiny in Massachusetts over allegations that it used artificial intelligence to target gamblers with promotions, a lawsuit that followed reporting on the company's use of machine learning.