Bank of America Securities has resumed coverage on Adobe (ADBE), assigning an Underperform rating with a price target of $190.
The analyst team, led by Tal Liani, stated that the company's growth prospects face increasing risks as generative AI lowers barriers for content creation and intensifies competition from low-cost and native AI alternatives. They believe that while some professionals will remain focused on pixel-level control and continue using Adobe's tools, over time, AI could capture a significant portion of the core market, potentially pressuring pricing and user growth.
The analysts view Adobe's own AI strategy as largely defensive. While it may help enhance user engagement and retention, its ability to generate substantial, high-quality annual recurring revenue at scale is seen as limited. The report added that a near-term acceleration in growth is unlikely.
The Bank of America report centers on a key question: can Adobe reaccelerate growth in the AI era? The analysts argue that despite a significant increase in the adoption of the company's AI products, there is not yet sufficient evidence that this translates into a meaningful ARR uplift. The pure AI business currently contributes less than 2% of total ARR.
The identified risks are said to be concentrated among low-end and amateur users, who may find "good enough" AI outputs a substitute for paid workflows. While professional and enterprise use cases are considered more resilient, they are not entirely immune to these pressures.
Liani's team also noted that the company's shift towards freemium and consumption-based billing models introduces profitability risks. They anticipate a deceleration in growth over time, forecasting a decline from 10.5% in fiscal 2025 to 8.8% in fiscal 2027, with no clear signs of a near-term recovery.
The analysts commented that while the valuation appears attractive, a clear catalyst is lacking. The stock trades at an enterprise value to free cash flow multiple of 8 times for fiscal 2027, which is at the low end of its peer group. However, they believe valuation alone is insufficient to drive market outperformance. Their assigned 7 times multiple for fiscal 2027 reflects two core themes: a lower long-term growth trajectory and increased uncertainty around the commercialization of AI.
They expect the company's margins and free cash flow to remain strong, but in the absence of clear evidence that AI monetization will significantly improve or growth will reaccelerate, they see limited scope for valuation expansion.
In contrast, HSBC holds a more optimistic view on Adobe's outlook. The bank recently upgraded its rating on the stock from Hold to Buy and raised its price target from $282 to $308, citing its belief that AI's disruptive impact on the business is limited.
The HSBC team, led by analyst Stephen Bersey, pointed to Adobe's second-quarter revenue growth of 12.7% year-over-year and the company's full-year fiscal 2026 revenue growth guidance of 11.8%. Based on these figures, they have not observed any material impact from AI-driven competitors.
The team believes the market has overestimated the negative impact from AI design tools, the risk-reward profile has now tilted favorably, and recent performance has remained robust.
According to TipRanks data, the overall consensus among Wall Street analysts is a Hold rating for Adobe, with an average price target of $257.19, implying a 16% upside from the latest closing price. The stock has declined 37% year-to-date.
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