Adobe revenue forecast sparks concern on AI returns

Bengaluru — Shares of Adobe fell almost 10% in premarket trading on Thursday after the Photoshop maker’s full-year revenue forecast led to concerns that returns from artificial intelligence (AI) investments into its software applications might take longer than expected.

“While the company remains on track with its GenAI product goals, 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.

The company, based in San Jose, California, on Wednesday forecast fiscal 2025 annual revenue between $23.3bn and $23.55bn compared with the average analyst estimate of $23.78bn, according to data compiled by LSEG.

“Given another sell-off, we observe a clear disconnect between management’s excitement and the internal signs of success that they see relative to what investors are seeing,” Morningstar analysts said.

Adobe recently released AI-related software tools and is investing substantially in AI-driven image and video generation technologies in response to growing competition from start-ups such as Stability AI and Midjourney.

Adobe’s advances in video-generation technology put it head-to-head with Sora is OpenAI's video generation model.

Adobe projected strong growth for the second half of the year in June, though at least seven brokerages cut price targets on the company’s shares after the revenue forecast.

“With Adobe underperforming the S&P for over five 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. The lack of clarity regarding generative AI monetisation is also working against the stock, it added.

Adobe’s stock has fallen about 8% this year, compared with the S&P 500 index’s 27.6% gain.

The company’s 12-month forward p:e ratio is 26.46, compared with Autodesk’s 33.63.

Reuters