Analysts at Melius Research downgraded Adobe Systems (NASDAQ to Hold from Buy with a $510 price target, citing artificial intelligence (ai) challenges in a note on Monday.
The firm believes the software industry, including giants like Adobe, may be facing a period of disruption similar to the shift from on-premise hardware to cloud computing.
Melius Research argues that ai could fundamentally change the way software is built and delivered. They point to factors such as the rise of cloud platforms and ai coding tools that can automate tasks and potentially make software creation faster and cheaper. According to the company, this could allow smaller ai-focused competitors to emerge and threaten established players like Adobe.
The note also highlights the potential impact of ai on traditional business models. The current seat pricing model, where customers pay per user, could be challenged by ai-powered solutions focused on outcomes or functionality. This transition could put even more pressure on established companies, they add.
While recognizing Adobe's strong brand and existing customer base, Melius Research believes the company may struggle to adapt to the changing landscape.
They point to the entry of new ai-powered competitors into the market and the potential for existing customers to optimize workflows using ai, reducing their dependence on traditional software licenses.
Given these concerns, Melius Research expects Adobe stock to remain range-bound for some time. The firm believes it is beneficial to wait and see how Adobe adapts to the changing software landscape before considering the investment.
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