Tesla shares fall after UBS downgrade on concerns over bullishness

(Bloomberg) — Tesla Inc. (TSLA) shares fell after UBS Group AG downgraded the company’s stock, citing concerns that the electric-car maker’s shares rose “too much, too soon” amid optimism about its artificial intelligence plans.

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Tesla shares were down 1.6% in premarket trading as of 4:30 a.m. in New York. The stock fell 8.4% on Thursday, snapping an 11-day winning streak, as Tesla reportedly pushed back the planned unveiling of its robots to October next month to allow teams working on the project more time to build additional prototypes.

The electric-car maker is among the 10 most valuable stocks in the S&P 500 (^GSPC), outpacing the rest of the tech giants with the largest market capitalizations. Before Thursday’s plunge, its shares had surged 44% through Wednesday, the latest rally on bets that billionaire founder Elon Musk can turn the company into an artificial-intelligence powerhouse.

“If market enthusiasm for AI wanes, this could impact Tesla’s multiples,” UBS analysts, including Joseph Spaak, wrote in a note, downgrading the company from neutral to sell.

The downgrade is justified “given the lack of visibility and the risk that growth opportunities over a longer time horizon will not materialize (or not materialize at all),” the analysts wrote, noting that the stock is trading at more than 80 times one-year estimated earnings.

UBS’s move reflects growing concerns about the valuations of AI-related companies, evidenced by overnight sell-offs in major tech stocks. Tesla is also facing a weak outlook for electric vehicles, weighing on its sales and profits.

The added value investors attribute to Tesla has grown due to its recent series of initiatives due to its enthusiasm for artificial intelligence, and “we would need to see greater opportunity to justify a buy rating,” the UBS analysts wrote.

UBS analysts raised their 12-month target for the stock to $197 from $147, representing an 18% decline from Thursday’s close. They used a higher price-to-earnings multiple to arrive at the new target.

—With assistance from Joel Leon.

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