Adobe (NASDAQ:ADBE) was downgraded to Equal-weight from Overweight by Morgan Stanley due to unknowns surrounding the software company’s ability to effectively monetize generative artificial intelligence.
“Our prior OW thesis on Adobe was predicated on the ability for the company to successfully innovate on, deliver, and eventually monetize Generative AI functionality across the customer base, leading to an inflecting in Digital Media ARR growth to the ~mid-to-high teens,” said Morgan Stanley analysts, led by Keith Weiss, in a Wednesday investor note. “Since that upgrade, we have seen the Digital Media ARR growth directionality diverge from the pace and quality of innovation being embedded within the product portfolio.”
Morgan Stanley also reduced its price target on the stock to $450 from $520.
The investment firm finds that direct gen-AI monetization has proceeded slower than investors anticipated and is not affecting annual recurring revenue as much as expected.
“To be clear, we continue to believe in both Adobe’s core value proposition and the expanded value capture opportunity Gen AI presents for complex, multi-channel marketers,” Weiss added. “However, given a lack of visibility into buckets of the base where competitive pressures could prove more material, we struggle to paint a clear catalyst path to DM ARR growth acceleration.”
Morgan Stanley also pointed out increased competition from firms such as Canva and Figma (FIG). It also faces competition from Magnificent Seven members Google (GOOG)(GOOGL) and Meta Platforms (META) in the enterprise marketing space and the use of gen-AI for content creation.
Adobe shares slipped 1% during early trading on Wednesday.