Adobe downgraded as shares could be rangebound for a while

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Adobe downgraded as shares could be rangebound for a while - Melius Research

Published Jun 10, 2024 18:48

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Adobe downgraded as shares could be rangebound for a while - Melius Research

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Melius Research analysts downgraded Adobe Systems (NASDAQ:ADBE) to Hold from Buy with a $510 price target, citing challenges from Artificial Intelligence (AI) in a note Monday.

The firm believes the software industry, including giants like Adobe, may be facing a period of disruption similar to the shift from on-premise hardware to cloud computing.

Melius Research argues that AI could fundamentally change how software is built and delivered. They point to factors like the rise of cloud platforms and AI coding tools that can automate tasks and potentially make software creation faster and cheaper. This could empower smaller, AI-focused competitors to emerge and threaten established players like Adobe, according to the firm.

The note also highlights the potential impact of AI on traditional business models. The current seat pricing model, where customers pay per user, could be challenged by AI-driven solutions focused on outcomes or functionality. This transition could further pressure established companies, they add.

While acknowledging Adobe's strong brand and existing customer base, Melius Research believes the company may struggle to adapt to the changing landscape.

They point to new AI-powered competitors entering the market and the potential for existing clients to optimize workflows using AI, reducing their reliance on traditional software licenses.

Given these concerns, Melius Research expects Adobe's stock to remain rangebound for some time. The firm believes it is beneficial to wait and see how Adobe adapts to the evolving software landscape before considering investment.

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