Adobe’s stock plunged nearly 12% on Thursday after the company issued a weaker-than-expected full-year revenue forecast, raising concerns that returns from its investments in artificial intelligence (AI) may take longer to materialize than anticipated.
“While the company is advancing according to its GenAI product roadmap, the absence of clear monetization metrics has made it difficult for investors to gauge progress,” said Matthew Swanson, an analyst at RBC.
The San Jose-based company projected fiscal 2025 revenue to fall between $23.30 billion and $23.55 billion, below the average analyst estimate of $23.78 billion, based on data from LSEG.
Morningstar analysts noted, “Despite management’s optimism and internal indicators of success, there is a clear disconnect between their outlook and the reality investors are seeing.”
Adobe, known for its flagship product Photoshop, is ramping up its AI investments, focusing on AI-driven image and video generation technologies. These investments are in direct response to growing competition from startups like Stability AI and Midjourney. Adobe’s advancements in video generation are positioning it as a direct competitor to OpenAI’s Sora, the AI-backed platform behind ChatGPT.
Despite projecting strong growth for the latter half of the year in June, Adobe’s revenue forecast led at least seven brokerages to reduce their price targets for the company.
“Given its prolonged underperformance relative to the S&P 500 over the past five years, Adobe must demonstrate more consistent revenue growth to rekindle investor confidence,” said Evercore ISI. The firm also noted that the ambiguity surrounding the monetization of Adobe’s generative AI offerings is further weighing on the stock.
At a current share price of $493.10, Adobe is on track to lose nearly $25 billion in market value if its losses continue. The stock has fallen 8% this year, underperforming the S&P 500, which has gained 27.6%. Adobe’s forward 12-month price-to-earnings ratio stands at 26.46, compared to Autodesk’s higher ratio of 33.63.
