Pure Storage(NYSE: PSTG) stock is slipping in Tuesday's trading. The company's share price was down 4.2% as of 1:15 p.m. ET, according to data from S&P Global Market Intelligence.
The sell-off on Pure Storage stock follows bearish coverage from a financial analysis firm. Before the market opened this morning, UBS published a research note downgrading its rating on Pure Storage from neutral to sell. Interestingly, UBS actually raised its price target for Pure Storage shares, but the stock is still losing ground due to the context of the coverage and the valuation concerns expressed.
UBS thinks Pure Storage stock has become overvalued
In its note, UBS raised its one-year price target on Pure Storage from $44 per share to $47 per share. But even with the price-target increase, the firm's forecast still suggests downside of roughly 25% for Pure Storage stock. UBS' chief analyst on the stock pointed to decelerating growth and market share pressures as key reasons for shifting to a bearish position on Pure Storage.
Has AI excitement pushed Pure Storage stock too high?
Even with today's pullback, Pure Storage stock is still up about 77% year to date. The company has a market capitalization of roughly $20.4 billion and is valued at approximately 6.5 times this year's expected sales and 39 times expected adjusted earnings.
In its recent coverage, UBS indicated there is a risk that Pure Storage's valuation has become unreasonably stretched due to excitement surrounding artificial intelligence (AI) initiatives and growth opportunities. In particular, UBS thinks that expectations for AI-related storage have become overheated. The firm expects that most AI-driven storage demand will come from inference applications rather than training services, and it anticipates that the market for training will grow at a significantly faster rate.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Pure Storage. The Motley Fool has a disclosure policy.
