MW Adobe rating lowered to sell on competition from Midjourney, other AI tools
By Steve Goldstein
Software maker Adobe was on the receiving end of a downgrade to sell, with the analyst arguing generative artificial intelligence is eroding the company's moat.
Analyst Omar Sheikh at Rothschild & Co. Redburn lowered Adobe's $(ADBE)$ rating to sell from neutral and his price target to $280 from $420.
Adobe stock closed Tuesday at $391.10, and the software maker's stock is down 12% this year. According to FactSet, the average target price is $484, and only one other analyst has a sell rating.
Adobe stock fell 1% to $386.77 in premarket action.
Adobe's moat is being eroded by tools including Sora, Alphabet's $(GOOGL)$ Veo and Imagen, Runway and Midjourney, the analyst said. Those now dominate what he calls the ideation phase of content creation.
Editing and workflow now are likely to be the next areas of disruption, "which will further call into question Adobe's ability to sustain pricing power, the key driver of revenue growth for professional users of its creative software," he said. "In this context, we think that to say Adobe faces significant AI disruption is not a controversial statement."
By 2026, he expects new generative AI tools to create fully editable multi-layered images and videos, and by 2027, this will be done using conversational user interfaces.
In financial terms, free cash flow growth should slow from 8% in 2026 to 3% by 2030. On that basis, he says the stock should trade on 13 times adjusted earnings, versus the current 19 times, he says.
Adobe faces three choices, he says. One would to be acquire a frontier image-generation model, train its generative AI software, Firefly, on a richer set of content and build more conversational workflows. Another would be to spin off a subsidiary to compete directly with low-end competitors. And finally, it could sell the company to a third party.
-Steve Goldstein
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July 02, 2025 07:09 ET (11:09 GMT)
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