Adobe stock downgraded to Sell by Redburn-Atlantic on AI disruption concerns

Investing.com - Redburn-Atlantic has downgraded Adobe (NASDAQ:ADBE) from Neutral to Sell, while significantly lowering its price target to $280.00 from $420.00. The software giant, currently trading at a P/E ratio of 24.93 with impressive gross profit margins of 89.25%, appears undervalued according to InvestingPro analysis.

The downgrade comes as the research firm warns that Adobe’s competitive advantage is "being eroded by genAI," with analyst Omar Sheikh pointing to tools like Sora, Veo, Imagen, Runway, and Midjourney that "now dominate the ideation phase of the content creation process." Despite these challenges, Adobe maintains strong financial health with a 10.63% revenue growth and robust free cash flow of $9.4 billion in the last twelve months. For deeper insights into Adobe’s competitive position, InvestingPro offers comprehensive analysis with 14+ additional key insights.

Redburn-Atlantic expects this competitive pressure to intensify, particularly in editing and workflow areas, which "will further call into question Adobe’s ability to sustain pricing power," identified as the key driver of revenue growth for professional users of its creative software.

The firm projects Adobe’s free cash flow growth will "continue to slow, to low single digits by 2030," and suggests the stock should trade at 12x 2026 EV/FCF, justifying the reduced price target.

Redburn-Atlantic examined three potential strategic responses for Adobe but concluded that none are "likely to be executed in the near term," leaving the company vulnerable to continued multiple compression as "investors question terminal value."

In other recent news, Adobe has been the focus of several analyst updates and product developments. The company recently launched its Firefly mobile app for iOS and Android, expanding its AI-assisted content creation platform to smartphones. This app integrates several third-party AI models, enhancing its ecosystem and providing users with new creative tools. According to Adobe, the Firefly platform has seen significant growth, with a 30% increase in traffic and nearly double the number of paid subscriptions quarter over quarter.

On the financial front, DA Davidson reiterated its Buy rating for Adobe, citing optimism in the company’s AI strategies and disciplined expense management. Meanwhile, Bernstein raised its price target for Adobe to $530, acknowledging potential revenue growth driven by AI and market strategies. Conversely, Citi lowered its price target from $465 to $450, expressing concerns about the sustainability of Adobe’s AI growth strategy. Additionally, Citizens JMP maintained its Market Perform rating on Adobe amid competitive developments, such as Canva’s acquisition of MagicBrief. These updates reflect a mixed but generally optimistic outlook on Adobe’s future performance and strategic direction.

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