Shares of Adobe were down around 10% before the opening bell on Thursday as the software maker’s disappointing full year revenue forecast renewed concerns on when the company will see tangible returns on its investments in AI applications.
The company is executing on its road map for GenAI products, but it hasn’t provided enough monetization metrics for investors to have confidence in what they are seeing,” said Matthew Swanson, an analyst for RBC.
On Wednesday, the San Jose, California-based firm projected its fiscal 2025 annual revenue to be between $23.30 billion and $23.55 billion, which falls short of the average analyst estimate of $23.78 billion, as per data from LSEG.
Morningstar analysts said, “In light of another selloff, there appears to be a significant disconnect between management’s enthusiasm and the internal indicators of success they perceive, compared to the perspective of investors.”
After increased competition from well funded startups such as Stability AI and Midjourney, lately, Adobe has unleashed an array of software tools related to AI and is heavily investing in technologies for AI-powered creation of images and videos.
Adobe’s video generation technology puts it in competition with OpenAI’s Sora, maker of ChatGPT. Despite forecasting strong growth in the second half of the year in June, at least seven brokerages have cut their price targets for Adobe shares after the revenue forecast.
Evercore ISI said, “With Adobe underperforming the S&P for an extended period of time, it would require getting back to a more regular cadence of upside to drive longer term investor interest,” adding that the uncertainty around monetizing generative AI is negative for the stock.
Year-to-date, Adobe’s stock is down about 8% while the S&P 500 index is up 27.6%. The stock now trades at a 12-month forward price to earnings ratio of 26.46 compared with Autodesk’s 33.63.
