Adobe Stock Drops 14% Over AI Revenue Uncertainty

Adobe shares dropped 14% as AI monetization concerns and competition intensified.

Adobe shares fell about 14% on Thursday as the company's fiscal 2025 guidance trailed investors' forecasts, sparking alarm over the ability to monetize its generative AI products against intensifying competition. The creativity software giant set annual revenue in the range of $23.3 billion and $23.6 billion with adjusted earnings per share between $20.20 and $20.50. Adobe announced its Firefly generative AI models in March 2023 and then added a video-generation model in October. Nevertheless, the company is competing with big giants such as Google and OpenAI, along with AI companies like Stability AI, Midjourney, and Runway. The growing competition and uncertainty about Adobe's AI revenue potential have been responsible for the almost 20% drop in the company's share price this year.

Analysts have faulted Adobe for not being transparent about its AI monetization strategy. Bernstein analyst Mark Moerdler pointed out that investors are finding it difficult to reconcile Adobe's positive AI commentary with its poorer financial performance and growth prospects. Moerdler lowered his price target on Adobe shares from $644 to $587 but kept an Outperform rating.

Investor anxiety was also intensified by Adobe's move to end quarterly guidance on a significant metric in its Digital Media business, which comprises Creative Cloud and Document Cloud. Morgan Stanley's Keith Weiss underscored that investors might need better financials before confidence in Adobe's AI approach comes back. But he noted that new subscription plans and add-ons for Firefly would assist in driving monetization in 2025.

In spite of short-term headwinds, William Blair analyst Jake Roberge is bullish on Adobe's long-term outlook, seeing the company as well situated to take advantage of the generative AI opportunity.