Adobe's stock slides toward worst day in 18 months, as AI story will take time

By Emily Bary

Adobe is currently focusing more on driving adoption of AI tools than trying to monetize them

Adobe Inc. is seen as a potential beneficiary of the artificial-intelligence boom, which could broaden the application of its creative tools.

But for now, the software company's latest results have investors disappointed in Adobe's (ADBE) timeline for generating meaningful revenue from those new use cases. Shares of Adobe are off 12.8% in morning trading Friday and on track for their largest single-day percentage decline since Sept. 15, 2022, when they lost 16.8%.

AI will be "slower to monetize than investors want," Jefferies analyst Brent Thill wrote in a note to clients following earnings. Adobe "continues to focus on driving AI adoption & usage, with monetization more likely later in [2024 and into 2025]."

Still, he reiterated a buy rating and $700 target price in his Friday report.

Evercore ISI's Kirk Materne said Adobe's full-year outlook "now seems less likely to offer a more material upside scenario around Firefly," a generative-AI creative tool. Plus, "the benefits Adobe is seeing from [generative] AI are essentially getting masked by last year's price increases," which had a bigger impact than expected, he noted.

Read: Snowflake's stock draws upgrade after steep decline, but it's hardly effusive

"While the bears are going to own the high ground until Adobe gets back into beat/raise mode, we believe the path to $1.9 billion in net new [digital-media annual recurring revenue] still seems viable as pricing headwinds abate" in the second half of the year, Materne wrote. Meanwhile, investors taking a six- to nine-month view of the stock could see Friday's pullback as an "interesting" buying opportunity, he said.

He rates the stock at outperform, but he lowered his price target to $650 from $700 Friday.

HSBC analyst Stephen Bersey was more cautious, flagging that AI could turn out to be a negative for Adobe.

"Adobe has enjoyed a high competitive moat over its corporate history and we think that AI has significantly eroded many of these competitive barriers and see competitive pressures building over time," he wrote. "AI has the ability to automatically perform many of the capabilities that users achieve manually while using Adobe."

He has a hold rating and $511 target price on the stock.

UBS's Karl Keirstead commented that Adobe "is clearly not driving near-term Firefly [revenues] via the enforcement of volume limits and is instead driving usage." That's "fine," in his view, as Salesforce Inc. (CRM) is making a similar decision, though he says Adobe shares bake in more of an AI premium.

Keirstead lowered his price target to $540 from $600, while sticking with a neutral rating.

Don't miss: How software investors should view the AI 'tsunami' as chip stocks outperform

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-15-24 1012ET

Copyright (c) 2024 Dow Jones & Company, Inc.