Citi raised its rating on Pinduoduo (NASDAQ:PDD) from Neutral to Buy, lifting the price target to $165 from $127, citing a more favorable U.S. tariff environment and improved profitability outlook for its Temu platform.

The upgrade follows a larger-than-anticipated and earlier-than-expected reduction in tariffs, which is seen as a key tailwind for Chinese cross-border sellers. Although the U.S. maintained the $800 de minimis threshold, Temu's strategic pivot to a semi-managed model and recent price increases position it to absorb the impact of a “30%+” tariff more effectively.

Citi expects that Chinese sellers will manage the cost burden through a combination of price passthrough to U.S. consumers and cost savings, including lower ad spend and production efficiencies. The focus on selling higher quality, higher-priced goods is also expected to support margins.

Additionally, with many sellers having pre-stocked inventory in the U.S. ahead of the tariff changes, a temporary cost-price mismatch could drive better-than-expected profits for Temu in Q2 2025. With the tariff overhang now diminished, Citi sees a clearer path for growth and profitability, justifying the rating upgrade.