Adobe’s AI Ambitions Face Scrutiny as Revenue Growth Lags

Adobe US00724F1012

A critical question is emerging for Adobe: can the software giant successfully convert its substantial investments in artificial intelligence into meaningful financial returns? This core challenge has prompted a reassessment by market analysts, with Jefferies recently downgrading its rating on the stock from "Buy" to "Hold."

Jefferies analyst Brent Thill highlighted disappointing revenue trends as the primary reason for the more cautious stance, simultaneously reducing the firm's price target from $500 to $400 per share. Adobe's growth rate has been decelerating consistently since fiscal 2023, and current projections for 2026 do not indicate an imminent, AI-fueled acceleration.

The company's recent quarterly performance presented a mixed picture. While it slightly exceeded expectations with earnings per share of $5.50 against a forecast of $5.40 and revenue of $6.19 billion versus an anticipated $6.11 billion, the 10.5% year-over-year growth failed to excite investors hoping for a more pronounced boost. For the full year 2026, Adobe's EPS guidance of $23.30 to $23.50 further dampened enthusiasm for a near-term AI windfall.

The Elusive AI Revenue Boost

Operational metrics reveal a significant gap between adoption and monetization. Usage of generative AI credits surged threefold in the third quarter, and over one-third of Adobe's recurring annual revenue is now reportedly influenced by AI capabilities. However, analysts note a lack of demonstrable, incremental revenue directly attributable to these new features. Jefferies anticipates that AI is unlikely to provide a material acceleration to Adobe's total revenue even by 2030, suggesting the company's focus remains on proliferating its AI tools rather than rapidly capitalizing on them.

Mounting Competitive Threats

Adobe's challenges are compounded by intensifying competition on multiple fronts. Rival content-generation models from tech heavyweights like Alphabet, Meta, and OpenAI are increasingly encroaching on Adobe's core markets. Simultaneously, established competitors such as Figma and Canva continue to gain market share. This dual-threat environment was a key factor cited by KeyBanc when it downgraded Adobe to "Underweight" last December.

Divergent Analyst Views Reflect Market Uncertainty

The analyst community displays notable divergence in its assessment of Adobe's prospects. The average price target currently stands at $414, implying a potential upside of approximately 25%. Yet the wide range of estimates—from a low of $270 to a high of $605—signals substantial market uncertainty. Of the 29 analysts covering the stock, twelve now recommend "Hold," while three advise selling.

A downward revision trend has been evident in recent weeks. Several institutions have adjusted their targets, including Wolfe Research (lowered to $440), Oppenheimer (to $430), and Morgan Stanley (to $425).

In summary, despite solid quarterly results, Adobe's stock faces persistent pressure. The disconnect between its advanced AI technology, exemplified by the Firefly system, and its translation into accelerated revenue growth has become a central concern for investors. Until this gap closes, skepticism is likely to prevail.