Adobe Inc (NASDAQ:ADBE) was reinstated with an 'Underperform' rating and a $190 price objective by Bank of America, whose analysts wrote that generative artificial intelligence is lowering barriers to content creation and increasing competitive pressure on the company's core creative software business.
Bank of America’s price target implies downside from current levels of $225.
The analysts wrote that AI is narrowing Adobe's competitive moat by enabling lower-cost and AI-native alternatives to compete more effectively. While professionals requiring pixel-level control are expected to continue using Adobe's products, they believe AI is likely to displace portions of the broader market over time, putting pressure on pricing and seat expansion.
Bank of America wrote that Adobe's AI strategy is "largely defensive," supporting customer engagement and retention but unlikely to generate meaningful incremental annual recurring revenue (ARR) at scale.
The analysts also questioned whether Adobe can reaccelerate growth in the AI era. They wrote that while adoption of the company's AI products has been notable, AI-first ARR still represents less than 2% of total ARR, providing limited evidence that the offerings are materially boosting growth.
According to the firm, competitive risks are greatest among lower-end and prosumer customers, where AI-generated content may increasingly substitute for paid creative workflows. Professional and enterprise customers remain more resilient, the analysts wrote, though they are not immune to these trends.
Bank of America expects Adobe's revenue growth to slow from 10.5% in fiscal 2025 to 8.8% in fiscal 2027, writing that it sees no clear path to near-term growth reacceleration. The firm also noted that a shift toward freemium and consumption-based pricing models could introduce additional monetization risk.
While Adobe trades at roughly 8 times the firm's estimated calendar 2027 enterprise value to free cash flow, near the low end of its peer group, the analysts wrote that valuation alone is insufficient to drive outperformance. They expect margins and free cash flow generation to remain strong but see limited potential for multiple expansion without clearer evidence that AI investments can accelerate growth and improve monetization.