Bank sees AI creating long-term competitive challenges
Bank of America has reinstated coverage of Adobe (NASDAQ:ADBE) with an Underperform rating and a $190 price target, arguing that while the stock appears inexpensive, the company’s competitive position is increasingly under pressure from generative artificial intelligence.
Analysts led by Tal Liani based the valuation on seven times Adobe’s projected 2027 enterprise value to free cash flow (EV/FCF), below the approximately 9.7-times average multiple applied to a broader group of software companies.
Adobe shares closed at $218.07 on Monday, around 70% below their 2024 peak and near the lower end of their 52-week trading range.
AI adoption has yet to deliver meaningful revenue growth
According to BofA, the key issue for investors is whether Adobe “can reaccelerate growth in the age of AI.”
While the company has seen encouraging adoption of its artificial intelligence products, the bank noted that AI-related annual recurring revenue still accounts for less than 2% of Adobe’s total recurring revenue.
Bank of America forecasts revenue growth slowing from 10.5% in 2025 to 8.8% in 2027, saying there is “no clear path to near-term reacceleration.”
Consumer users seen as most vulnerable
The analysts believe AI poses different levels of risk across Adobe’s customer base.
Casual users and non-professional creators are viewed as the most exposed because AI-generated content that is “good enough” may increasingly replace paid subscriptions.
Professional users and enterprise customers are expected to remain more resilient due to their need for accuracy, collaboration tools and integrated creative workflows.
However, the report cautioned that “not all professional users need the full Adobe workflow,” leaving individual application users and prosumers exposed to lower-cost AI-focused competitors.
Adobe Stock and leadership changes add uncertainty
BofA also highlighted ongoing weakness in Adobe Stock, the company’s marketplace for images and videos.
Management disclosed that revenue from the platform has declined for two consecutive quarters, although it did not provide specific figures. The analysts believe this reflects the growing impact of free and low-cost AI content generation tools, which could reduce demand for Adobe’s higher-margin products over time.
The report also pointed to recent executive changes, including the simultaneous departures of Chief Executive Officer Shantanu Narayen and Chief Financial Officer Dan Durn.
According to the analysts, the leadership transition “heightens risk around strategy, continuity, and leadership stability” as Adobe adapts its business for the AI era.
Strong cash flow supports the business
Although Bank of America acknowledged that Adobe trades at an attractive valuation relative to software peers, it argued that valuation alone is not enough to justify a more constructive investment view.
The bank expects Adobe to continue generating healthy margins and projects free cash flow margins of around 39% by 2028, but believes there is “limited multiple expansion without clear evidence of AI monetization and growth acceleration.”