Adobe price target lowered to $450 from $465 at Citi on AI concerns

Citi maintained its Neutral rating on Adobe stock (NASDAQ:ADBE) Monday while lowering its price target to $450 from $465, citing concerns about the sustainability of the company’s artificial intelligence growth strategy. According to InvestingPro data, Adobe currently appears undervalued, with the stock trading at an attractive PEG ratio of 0.6 despite maintaining impressive gross margins of 89%.

The price target reduction follows Adobe’s fiscal second-quarter results, despite Citi slightly raising its fiscal year 2025 projections due to favorable foreign exchange movements and improved Digital Media revenue performance. The company has demonstrated solid revenue growth of 10.6% over the last twelve months, with 23 analysts recently revising their earnings estimates upward. For deeper insights into Adobe’s valuation and growth metrics, check out the comprehensive Pro Research Report available on InvestingPro.

Citi acknowledged some positive developments in Adobe’s AI monetization efforts, including AI-first annual recurring revenue tracking ahead of year-end targets and increased first-time subscribers due to Firefly Apps.

The firm expressed skepticism about Adobe’s long-term AI growth potential, pointing to various pricing initiatives cycling on and off in fiscal 2025 and signs of diminishing market share for Adobe’s AI models, with Firefly generations remaining flat quarter-over-quarter amid greater third-party model support.

Citi also noted a disconnect between management’s comments about first-half momentum and the further deceleration in growth implied by second-half forecasts, suggesting the gap likely reflects additional prudence in Adobe’s outlook.

In other recent news, Adobe reported first-quarter revenues of $5.87 billion, growing 11% on a constant currency basis, slightly exceeding TD Cowen’s estimates. The company has also raised its fiscal year 2025 guidance following a second-quarter beat and favorable foreign exchange conditions. Adobe’s artificial intelligence book of business is tracking ahead of its fiscal year 2025 target of approximately $250 million in annual recurring revenue. RBC Capital reaffirmed its Outperform rating and $480 price target, citing solid performance across key metrics and a positive outlook on demand generation initiatives. BMO Capital also maintained its Outperform rating and $450 price target, noting Adobe’s stronger revenue results and improving Creative Cloud growth. Meanwhile, Bernstein raised its price target to $530, highlighting Adobe’s potential for 10% revenue growth driven by AI and stock buybacks. However, TD Cowen lowered its price target to $470, attributing this to pressure in sector valuations, despite Adobe’s Creative Cloud Pro pricing plan expected to add pricing tailwinds. UBS maintained its Neutral rating and $430 price target, observing that Adobe’s revenue growth outlook is not catalyzing the stock.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.