Adobe's stock fell after a recommendation to sell it. The company is threatened by AI competitors
For the year, the company's stock fell 34% despite a financial report that exceeded analysts' expectations
Adobe shares fell almost 4% after analyst Rothschild & Co Redburn gave the securities a "Sell" rating and lowered the target price for the first time in a long time. In his view, the new generative AI services dilute the company's key advantages in the content creation software market and threaten its pricing power.
Details
Shares of struggling software giant Adobe fell 3.5% on Wednesday after Rothschild & Co Redburn analyst Omar Sheikh downgraded them from Neutral to Sell, writes Barron's.
In his research note, Shaikh also lowered his target price on Adobe shares from $420 to $280, down 26% from their closing price on July 2. The company's securities have fallen 34% over the past 12 months and nearly 15% since the beginning of the year, even though Adobe's second-quarter financial report, published in June, beat analysts' expectations.
What does the analyst see as the problem?
According to Sheikh, the proliferation of generative AI tools that can turn text into images and videos is already threatening the company's position.
Adobe, developer of creative solutions and document management including Photoshop and Acrobat, has long controlled all stages of the content creation process for professional users - from idea inception to editing and workflow organization, notes Barron's.
The analyst noted that AI platforms such as Imagen - Google Deepmind's image generator - and Sora - OpenAI's video generation model - are now becoming the primary choice for professionals starting creative projects.
"Editing and workflow management are likely to be the next areas where serious displacement will begin, further challenging Adobe's ability to maintain pricing power," Sheikh wrote.
That's a problem for a company that has used price increases as a driver of growth, the publication writes.
Nevertheless, Sheikh acknowledged that Adobe could use its large cash flow to develop a strategic approach to AI.
In particular, the company could acquire an image generation model, create its own advanced model with AI-based editing features and develop AI tools to manage user workflows. Management could also go for more radical steps - for example, spinning off a subsidiary focused on competing with new players, or even selling the company itself, the analyst said.
What other analysts are saying
Wall Street generally remains optimistic about Adobe. Of the 41 analysts surveyed by FactSet, 26 recommend buying the stock or holding it with an overweight portfolio, and only Redburn has posted a "Sell" or equivalent rating since April. According to FactSet, the average Wall Street target price for Adobe shares is $478.2, up 26.5% from the closing price on July 2.
This article was AI-translated and verified by a human editor
