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Investing.com -- Redburn Atlantic downgraded Adobe (NASDAQ:ADBE) shares to Sell from Neutral, flagging mounting risks to its competitive position as generative AI reshapes the creative software landscape.
The broker also slashed its price target to $280 from $420.
“Adobe’s moat is being eroded by tools including Sora, Veo, Imagen, Runway and Midjourney, which now dominate the ideation phase of the content creation process,” said Omar Sheikh, an equity analyst at Rothschild & Co Redburn.
Sheikh notes that editing and workflow—the next two pillars of Adobe’s moat—are also likely to face disruption, calling into question the company’s ability to sustain pricing power.
“In this context, we think that to say Adobe faces significant AI disruption is not a controversial statement,” he wrote.
Redburn expects Adobe’s free cash flow (FCF) growth to slow to the low single digits by 2030, and now values the stock at 12x 2026 EV/FCF, compared to the current 17x.
“We now model FCF growth slowing from 8% pa in 2026 to 3% pa by 2030,” they said.
The report outlines three strategic responses Adobe could pursue, including acquiring a frontier image generation model to bolster its proprietary GenAI model, Firefly, spinning off an AI-native subsidiary, or selling the company outright.
However, the analysts believe none of these are likely to be executed in the near term.
Sheikh also points out that Firefly lags behind leading alternatives in terms of output quality. They cited “a performance gap” that could widen, pushing users toward superior tools from rivals like OpenAI and Google (NASDAQ:GOOGL).
With Adobe trading at $387 and a market cap of $174 billion, the analyst believes “the multiple deserves to contract further” as the company faces a potentially difficult transition period.
Still, there are risks to this view, he added, including Adobe successfully pivoting using its strong cash flow or slower progress from AI competitors.