Adobe Shares Fall After Weak AI Forecast: Analyst Reactions and Future Outlook

Shares of Adobe (ADBE) have been on a downward trajectory following the company’s disappointing earnings forecast, which has raised concerns among analysts about the timeline for returns from its AI-focused initiatives. Despite substantial investments in AI for image and video creation to stay competitive with firms like Midjourney, Adobe’s fourth-quarter revenue guidance fell short of expectations. The company has projected revenue between $5.5 billion and $5.55 billion, below the analysts’ estimates of $5.6 billion.

Revenue and Subscription Growth

Despite the lower revenue guidance, Adobe remains optimistic about its subscription growth. The company expects to exceed its annual net new recurring revenue (NNARR) targets, reflecting a positive outlook on subscription growth. NNARR measures revenue gained from new customers, expansions, and upgrades, minus losses from churn or downgrades.

Analyst Reactions

Following Adobe’s Fiscal Q3 results, Wall Street analysts have shown differing views. JP Morgan analyst Mark Murphy, who is highly rated, has maintained a positive outlook on Adobe’s NNARR, noting that the company is on track for year-on-year NNARR growth in Q4. Murphy also highlighted Adobe’s strong new bookings and reiterated a Buy rating with a price target of $580, which implies a 1.1% downside potential from current levels.

In contrast, Bernstein analyst Mark Moerdler has expressed concerns about Adobe’s Q4 guidance, describing it as “underwhelming” despite solid Q3 results. Moerdler pointed out a disconnect between the two quarters and criticized the management for not adequately addressing factors causing market unease. Although Moerdler has kept a Buy rating on the stock, he lowered the price target from $660 to $644, indicating a potential upside of 9.8% from current levels.

Conclusion

Adobe’s recent earnings forecast has led to a drop in its share price, primarily due to concerns about the delayed impact of its AI investments. While the company remains optimistic about its subscription growth and NNARR, analysts are divided in their outlook. The varying perspectives highlight the market’s uncertainty about Adobe’s short-term performance despite its long-term strategic investments.