A Wall Street firm warned that Dropbox's stock price has risen faster than its actual business performance.

Shares of Dropbox fell 5.7% to $32.28 after receiving a downgrade from Citi. Analyst Steven Enders downgraded the stock to Sell from Neutral with a $29 price target, saying the current valuation reflects future artificial-intelligence growth that Dropbox has yet to prove.

Enders said Dropbox's Pillar 3 of its AI infrastructure, an initiative to pivot beyond traditional file storage and build dedicated AI data and storage infrastructure, could generate revenue in the long term, but he cautioned that it's still in its early stages and hasn't yet translated into immediate growth.

The move, however, appeals to investors, because it positions Dropbox to enter a fast-growing, higher-value technology sector. Instead of just storing PDFs or images, Pillar focuses on managing large datasets required to power enterprise AI models and applications.

After Dropbox shares hit a low point in April-trading at about $21 to $22 a share-the stock rose sharply to around $33 and $34 a share. Enders noted that investors prematurely priced in Dropbox's AI future, which inflated the stock price by about $12 before the underlying business could justify it.

He added that while Dropbox's main file-sharing business has stopped shrinking, the company has offered little evidence to show a clear path for future growth.

Enders said that while investors remain excited about Pillar 3, he estimates that the initiative is currently worth around $3 a share in added value.