Adobe Systems Incorporated (NASDAQ:ADBE) moved higher in premarket trading on Thursday after HSBC upgraded the software company to Buy from Hold, arguing that investor concerns over the impact of generative artificial intelligence on Adobe’s business have become overly pessimistic.
Adobe shares rose 1.8% to $214.85 before the opening bell following the broker’s revised recommendation.
HSBC lifts target price after strong quarterly performance
HSBC increased its price target on Adobe to $308 from $282, saying it had reassessed the competitive risks posed by AI-powered design platforms following the company’s stronger-than-expected fiscal second-quarter results.
The bank noted that Adobe continues to deliver healthy growth across its core operations, suggesting fears that AI-native competitors could significantly disrupt the business have yet to materialise.
AI adoption continues to support growth
According to HSBC, there is little evidence that emerging AI-focused rivals are taking meaningful market share from Adobe.
The brokerage highlighted second-quarter revenue growth of 12.7% year over year and a 13.1% increase in remaining performance obligations, indicating that customers are embracing Adobe’s AI-powered tools while remaining within its software ecosystem.
HSBC also raised its earnings forecasts for fiscal years 2026 through 2028 by approximately 3% to 8%, citing stronger operating momentum, ongoing share repurchases and a less severe long-term impact from AI competition than previously anticipated.
The bank added that Adobe’s expanding portfolio of AI products is expected to enhance its existing software offering rather than replace it.
Margin pressure linked to investment strategy
HSBC expects Adobe’s non-GAAP operating margin to moderate to around 45% this year from 46.2% in fiscal 2025.
However, the brokerage said the decline is largely attributable to the acquisition of Semrush and investment in freemium users, rather than any weakening of the underlying business.
The report also highlighted Adobe’s shareholder returns, noting that the company repurchased more than $2.2 billion worth of shares during the second quarter.
Valuation still viewed as attractive
HSBC said Adobe currently trades at roughly 8.5 times its projected 2026 non-GAAP earnings, representing a discount to the broader software sector despite offering earnings growth comparable to many of its peers.
The bank believes the current valuation does not fully reflect Adobe’s resilience or its long-term ability to generate value from artificial intelligence.