Adobe Sees Stock Decline Amid Concerns Over AI Revenue Returns

Shares of Adobe (NASDAQ:ADBE) experienced a nearly 10% drop in premarket trading on Thursday following the company’s disappointing annual revenue forecast. This decline has raised worries that the financial benefits from Adobe’s investments in artificial intelligence (AI) within its software applications may not materialize as quickly as anticipated.

RBC analyst Matthew Swanson noted, "While the company remains on track with its GenAI product roadmap, we think the lack of explicit monetization metrics has made it harder for investors to get comfortable with the progress." This sentiment highlights the uncertainty surrounding how and when Adobe will generate revenue from its AI initiatives.

Based in San Jose, California, Adobe announced on Wednesday that it expects fiscal 2025 revenue to fall between $23.30 billion and $23.55 billion. This outlook was below the average analyst estimate of $23.78 billion, as gathered by LSEG.

Morningstar analysts commented on the situation, stating, "Given another selloff, we observe a clear disconnect between management's excitement and the internal signs of success that they see relative to what investors are seeing." This reflects a growing concern among investors about the company’s performance versus its leadership’s optimism.

Adobe has recently launched several AI-related software tools and is investing heavily in technologies for image and video generation driven by AI. These efforts come in response to intensifying competition from well-funded startups like Stability AI and Midjourney, which aim to attract users in the fast-evolving tech landscape.

Furthermore, Adobe's advancements in video-generation technology are positioning it directly against Sora, a product developed by OpenAI, the creator of ChatGPT.

Although Adobe had predicted strong growth for the latter half of the year back in June, the sobering revenue forecast prompted at least seven brokerages to lower their price targets on the stock.

Evercore ISI emphasized the importance of Adobe needing to regain a consistent pattern of reporting profitable quarters to revive long-term investor interest. They stated, "With Adobe underperforming the S&P for over 5 years now, getting back into a more consistent cadence of beat/raise is basically a necessity to rekindle long-term investor interest." They also mentioned that the ambiguity regarding monetization of generative AI is a factor working against the stock's performance.

In terms of stock performance this year, Adobe's shares have decreased by about 8%, contrasting sharply with the 27.6% gain seen in the S&P 500 index. The company's current 12-month forward price-to-earnings ratio stands at 26.46, noticeably lower than Autodesk's (NASDAQ:ADSK) ratio, which is at 33.63.

Adobe, Stocks, AI