Adobe has become a polarizing stock in the face of questions about its AI future

Shares of Adobe have declined 35% so far this year.

Adobe's stock may be cheap, but that doesn't necessarily make it an attractive buy for bargain hunters, according to Bank of America.

The design-software company has struggled to convince investors that its pricing model and artificial-intelligence offerings are enough to compete with cheaper upstarts, and Bank of America's Tal Liani isn't optimistic that sentiment will change.

He reinstated coverage of Adobe's stock $(ADBE)$ with an underperform rating and a $190 price target on Tuesday - writing that its growth profile is at risk as generative AI makes content creation easier and cheaper. He believes that while the company is likely to retain those users who require Adobe-specific design tools and pixel-based controls, it could lose a larger group of occasional users to cheaper, AI-native solutions.

Liani noted that while the stock's current valuation - at eight times its estimated free cash flow for the 2027 calendar year - is "tempting" and trades at the low end of its peer group, he believes the company is "fundamentally challenged" and will struggle to convert its AI offerings into meaningful annual recurring revenue.

He also expects the Adobe's growth rate to decelerate over time, from 10.5% in 2025 to 8.8% in the 2027 fiscal year, adding that he sees "no clear path to near-term [growth] reacceleration."

Baptista analyst Ishan Majumdar, however, thinks the company's latest figures were "encouraging." He pointed to its record quarterly revenue of $6.62 billion in the fiscal second quarter of 2026, as well as its AI-related annual recurring revenue that now stands above $500 million.

Majumdar believes Adobe's value proposition is not just that it has a generative-AI tool, but also that AI is embedded in workflows that are deeply distributed across enterprises via services like Creative Cloud, Acrobat and Digital Experience.

"That gives Firefly, Express and AI Assistant a clearer monetization path than many standalone AI apps, because Adobe can potentially convert usage into subscriptions, credits and enterprise workflow spend," he said.

However, Majumdar told MarketWatch that investors are "still debating" whether or not AI will expand the company's moat.

He said that investors want to see evidence that Adobe's "freemium" funnel will translate to durable paid-subscriber growth, and not weaken the pricing power for its premium offerings. The company is building a user base of those who will have access to AI tools for free initially, before usage caps that are meant to convert them into paid subscribers take effect.

Majumdar told MarketWatch that the concern for Adobe is timing: The next phase of its performance will depend on how the company can execute on conversion and pricing, as well as how it addresses its leadership situation.

In March, Adobe CEO Shantanu Narayen announced plans to step down once a successor is named. And in June, CFO Dan Durn departed the company for chip giant Marvell $(MRVL)$.

Shares of Adobe were up 5% on Tuesday. They're off 36% so far this year.

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-Hannah Pedone

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July 07, 2026 15:28 ET (19:28 GMT)

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