Adobe (ADBE) executives have been adamant that it has gone all-in on artificial intelligence, seeing generative-AI tools as being crucial to innovating its Creative Cloud software.
While the company has long catered to artists and other creatives, Adobe views AI as being something this core customer base needs to embrace.
“Our goal is to make our customers successful, and we think that in order for them to be successful, they need to embrace the tech,” Alexandru Costin, vice president of generative AI at Adobe, said in an interview with The Verge last year.
The company is delivering its vision through its AI-assisted Firefly platform, which lets users generate images, video, audio, and vectors. But Wall Street isn't convinced Adobe can pull it off.
This became clear when it reported better-than-expected Q2 earnings in June but still saw its stock close 5% lower.
"The key investor question remains when (if) AI innovation can move the needle," Morgan Stanley analysts wrote in a client note at the time.
Although the bank gave the company an Overweight rating, it added that Adobe’s quarterly performance "brought little to quell the bear concern around AI contribution being unable to reaccelerate growth while bulls must remain patient for encouraging AI metrics to move the needle."
And two months later, it appears that Adobe still hasn’t done enough to convince analysts that it can spur growth through AI.
Melius Research analyst Ben Reitzes downgraded Adobe shares from Sell to Hold on Monday, while also cutting his price target to $310 from $400.
Although Reitzes was specifically rating Adobe, he noted that the company’s struggles are going to be felt by many of the big software companies, including Salesforce (CRM) and Atlassian (TEAM).
The issue is that large technology companies — particularly those that build the infrastructure to power AI agents — are going to threaten the market share of these software companies.
“The world is coming around to the reality that ‘AI is eating software,’” Reitzes wrote.
He was referencing a quote that venture capitalist Marc Andreesen made back in 2011. “Software is eating the world,” Andreesen said at the time, noting how software companies were disrupting numerous traditional industries.
And now it's the software companies that are facing disruption.
“It can get worse for SaaS [software as a service] players like Adobe, Salesforce,Workday etc. — and see value continuing to shift toward infrastructure winners like Microsoft and Oracle,” Reitzes said.
The challenge for Adobe is that its Creative Cloud platform has at its core tools for creating and working with images and video, which is something that other companies can now offer as well.
“AI has made it easier for big Clouds like Google (who have access to huge compute resources) to easily create image and video generation tools that literally blow you away (tools from OpenAI and Meta are impressive too),” Reitzes noted.
Adobe’s stock fell 2.2% on Monday. It is down nearly 25% YTD.
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