Needham initiated coverage on Klarna Group (NYSE:KLAR) with a Hold rating, sending shares up more than 2% in intraday trading Tuesday.

The firm said Klarna remained a global leader in the buy-now-pay-later sector with $114 billion in gross merchandise volume and a growing roster of partnerships with leading consumer brands. Analysts also pointed to Klarna's full banking license as a competitive edge in funding relative to peers.

However, Needham raised concerns over rising costs, noting that earlier moves to reduce headcount and replace customer service agents with AI had reversed. The firm also flagged risks tied to Walmart's decision to shift from Affirm to Klarna competitor platforms, which could weigh on financials. At a valuation of about 56 times projected FY27 earnings, Needham said it could not recommend the shares at present.