Adobe’s shares dropped by almost 12% following the Photoshop maker’s negative full-year revenue forecast, due to worries that returns from AI investments in its software applications might take longer than anticipated.
“While the company remains on track with its GenAI product roadmap, we think the lack of…explicit monetisation metrics has made it harder for investors to get comfortable with the progress,” RBC analyst Matthew Swanson said, as reported by Zawya.
According to data compiled by LSEG, the San Jose, California-based company recently projected fiscal 2025 annual revenue between USD 23.30 billion and USD 23.55 billion, which is lower than the average analyst estimate of USD 23.78 billion.
“Given another selloff, we observe a clear disconnect between management’s excitement and the internal signs of success that they see relative to what investors are seeing,” according to Morningstar analysts.
Adobe is responding to increasing competition from well-capitalised startups like Stability AI and Midjourney by investing heavily in AI-driven image and video generation technologies, despite having recently released AI-related programmes.
Adobe’s advancements in video generation technology put it in direct competition with OpenAI’s Sora, which created ChatGPT.
In June 2024, Adobe forecasted robust growth for the second half of the year; however, after the revenue forecast, at least seven brokerages lowered their price targets for the company’s shares.
“With Adobe underperforming the S&P for over 5 years now, getting back into a more consistent cadence of beat/raise is basically a necessity to rekindle long-term investor interest,” Evercore ISI said, adding that the lack of clarity around generative AI monetisation is also working against the stock.
Adobe is expected to lose almost USD 25 billion in market value if losses continue, given its current share price of USD 493.
While the S&P 500 index has gained 27.6% so far this year, the stock has dropped about 8%. The 12-month forward price-to-earnings ratio for the company is 26.46, while Autodesk’s is 33.63.