Pure Storage (NYSE:PSTG) shares dropped more than 5% ahead of 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 data storage solutions provider due to slowing growth, declining market share, elevated valuation, and “too much credit given to AI.”
Analysts expect PSTG’s growth to decelerate to around 8% over the next five years, a notable decrease from the 16% growth rate observed in the previous five years. The firm anticipates the company's share of the all-flash storage market to plateau around 15%. moreover, UBS's revenue forecasts for fiscal years 2026 and 2027 are 6% and 10% below consensus, respectively.
The downgrade also takes into account a drop in market share, with Pure's last twelve months' share of the all-flash storage market falling by roughly 80 basis points to 14.5% “as new offerings like NetApp's C-series have increasingly resonated with enterprise customers,” analysts noted.
As for its valuation, UBS highlighted that the stock has surged by approximately 83% year-to-date, outpacing the S&P 500's 15% gain significantly. This rise comes despite a 1% drop in revenue expectations for fiscal years 2025 and 2026.
Lastly, analysts note that views that AI infrastructure investments will spur PSTG’s growth have boded well for PSTG’s valuation, however, “AI-related storage spending will likely be slower than the market expects and more tied to inference, a slower growth market than training,” they said.
“Finally, private vendors like Weka, VAST Data, and Hammerspace are gaining share as evidenced by Meta's announcement it is partnering with Hammerspace to co-develop and land a parallel network file system (NFS) deployment in its GenAI clusters,” they added.
Alongside a downgrade, analysts slightly lifted their price target on PSTG shares from $44 to $47.