Citi upgraded PDD Holdings to Buy with a price target of $165, citing a “positive outcome for China cross-border sellers” following a larger and quicker-than-expected reduction in U.S. tariffs.

In a research note, Citi said the revised tariff structure is a clear benefit to Temu, PDD’s fast-growing U.S. e-commerce platform. 

“We view the ‘30%+’ tariff as manageable for Chinese sellers where a portion of the tariff will likely be passed to U.S. consumers and a portion of the cost will be offset by expense optimization,” Citi wrote. 

This is said to include reductions in advertising and production costs and a shift to selling higher-quality goods with better pricing power.

According to China’s Ministry of Commerce, the U.S. and China agreed to cancel 91% of escalatory tariffs imposed since April 2 and suspend 24% more over the next 90 days. 

The new effective tariff rate stands at 38.6%, Citi said, made up of “an inherited 11%, a 20% fentanyl tariff, and a blanket reciprocal tariff of 10%.”

Citi also noted that while the U.S. has not removed the $800 de minimis rule, its impact on Temu is limited given the platform’s shift to a semi-managed model and recent price increases. 

With sellers having pre-loaded 3 to 5 months of inventory to the U.S. before the new pricing, the note said “there could be [a] temporary mismatch of cost vs selling price that results in better/higher-than-expected profit for Temu in 2Q25.”

Citi maintained its earnings estimates but raised its valuation multiple, saying tariff uncertainty has been “largely reduced,” though risks remain related to potential ADR delisting and limited company communication.