Adobe Shares Drop Amid AI Investment Uncertainty

Shares of Adobe experienced a nearly 10% decline in premarket trading on Thursday, following a cautious full-year revenue forecast that has raised doubts about the timely returns from its AI investments in software applications.

"While the company remains aligned with its GenAI product roadmap, the absence of explicit monetization metrics has made it challenging for investors to assess the progress," noted RBC analyst Matthew Swanson.

The San Jose, California-based company projected fiscal 2025 annual revenue between $23.30 billion and $23.55 billion, falling short of the average analyst estimate of $23.78 billion, according to LSEG data.

"There appears to be a disconnect between management's enthusiasm and the internal indicators of success they observe, compared to what investors perceive," commented Morningstar analysts.

In response to growing competition from well-funded startups like Stability AI and Midjourney, Adobe has been making substantial investments in AI-driven image and video generation technologies. Its advancements in video-generation technology position it directly against OpenAI's Sora, the creator of ChatGPT.

Despite Adobe's optimistic growth projection for the second half of the year in June, at least seven brokerages have lowered their price targets on the company's shares post the revenue forecast.

"With Adobe underperforming the S&P for over five years, achieving a more consistent beat/raise pattern is essential to reignite long-term investor interest," Evercore ISI stated, also pointing out the lack of clarity around generative AI monetization as a factor working against the stock.

Year-to-date, Adobe's stock has declined about 8%, contrasting sharply with the S&P 500 index's 27.6% gain. The company's 12-month forward price-to-earnings ratio stands at 26.46, compared to Autodesk's 33.63.