12:16 PM EDT, 07/12/2024 (MT Newswires) -- Tesla's (TSLA) valuation is increasingly difficult to justify amid a lack of visibility and the risk that growth opportunities including in artificial intelligence materialize on a longer time horizon, UBS Securities said in a note Friday.

Tesla has always carried a premium for its future growth initiatives, but recent enthusiasm around artificial intelligence has widened this premium, making it challenging to value accurately, according to the note.

"While Tesla is investing heavily in artificial intelligence, the technology is making progress, investment is costly, the pace of improvement may slow and the payoff is long-dated," UBS added. "If market enthusiasm for artificial intelligence diminishes, this may impact Tesla's multiple."

Tesla's non-auto contributions, which are becoming increasingly important as expectations for the company's core Auto business deteriorate, to its stock price are high, indicating a good opportunity to sell as the stock tends to trend downwards "when other becomes a larger contributor to price."

UBS said it could be wrong if Tesla's stock price disconnects from fundamentals, Q2 results exceed expectations or positive surprises on "robo-taxi" day boost momentum.

The firm downgraded its rating on Tesla to sell from neutral and increased the price target to $197 from $147.

Shares of Tesla were up about 4% in recent trading.

Price: 250.19, Change: +9.16, Percent Change: +3.80