Pure Storage stock down as UBS downgrades to Sell due to unjustified valuation By Investing.com

Shares of Pure Storage (NYSE:) fell more than 5% before the market open on Tuesday after UBS analysts downgraded the stock from neutral to sell.

The move comes as UBS sees an unfavorable risk-reward profile for the flash storage solutions provider due to slowing growth, declining market share, high valuation, and “high praise for AI.”

Analysts expect PSTG growth to slow to around 8% over the next five years, a significant decline from the 16% growth rate seen in the previous five years. The company expects the company’s share of the all-flash storage market to reach around 15%. Furthermore, UBS’s revenue forecasts for fiscal years 2026 and 2027 are 6% and 10% below consensus, respectively.

The downgrade also takes into account declining market share, with Pure’s share of the all-flash storage market down 80 basis points over the past 12 months to 14.5% “as new offerings like NetApp’s C-Series increasingly resonate with enterprise customers,” the analysts noted.

As for its valuation, UBS highlighted that the stock is up about 83% year-to-date, significantly outpacing the S&P 500’s 15% gain. This rise comes despite a 1% reduction in revenue forecasts for fiscal years 2025 and 2026.

Finally, analysts noted that the view that AI infrastructure investments would drive PSTG growth boded well for PSTG’s valuation, however, “AI-related storage spending is likely to be slower than the market expects and more closely related to inference, a market with slower growth than training.”

“Finally, private sector vendors like Weka, VAST Data, and Hammerspace are gaining share as evidenced by Meta’s announcement of a partnership with Hammerspace to develop and deploy a parallel Network File System (NFS) on its GenAI clusters,” they added.

Along with the downgrade, analysts raised their price target on PSTG shares slightly from $44 to $47.