Oppenheimer has become the latest financial institution to downgrade Adobe (ADBE.US), lowering its rating on the creative software company from "Outperform" to "Perform." In a detailed investor note on Tuesday, analysts led by Brian Schwartz stated, "We had previously been optimistic about Adobe, anticipating that momentum in its artificial intelligence business would revitalize growth in its Digital Media segment. However, reality has not unfolded as we expected, which is evident from the further deceleration in Digital Media growth projected for fiscal 2025."
Schwartz noted, "In our view, Adobe possesses solid medium-term opportunities and its stock is inexpensive. Yet, the challenging operating environment during the AI technology transition has resulted in mediocre and persistently decelerating revenue growth, poor execution of product cycles, concerns about the durability of its moat, low investor interest in holding software stocks, and a year-over-year decline in the operating margin guidance for fiscal 2026. These factors are likely to negatively impact market sentiment regarding the company's growth opportunities this year and constrain the near-term upside for ADBE's share price."
This marks the most recent in a series of downgrades for Adobe. Last week, both Bank of Montreal and Jefferies downgraded Adobe's rating to "Market Perform" and "Hold," respectively. Prior to that, KeyBanc had already downgraded the stock to "Underweight" in mid-December.
This also reflects a broader trend where software stocks have failed to garner the same level of boost from the AI wave as hardware stocks have. Nevertheless, Oppenheimer maintains a favorable view on several other companies within the software sector, including Microsoft (MSFT.US), Salesforce (CRM.US), ServiceNow (NOW.US), and Agilysys (AGYS.US).
Schwartz commented, "We believe Microsoft Azure's performance could improve significantly in the second half of calendar 2026 as new data centers scale up. ServiceNow and Salesforce are thematic plays in the AI market—these companies need to shift investor sentiment (acting as 'show-me' stories) and execute well on mergers and acquisitions. Finally, benefiting from its Marriott business, Agilysys should see a re-acceleration in growth and significant margin improvement in fiscal 2027."
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