Adobe's Growth, Long-Term Pricing Power at Risk From Generative AI, BofA Says

Adobe (ADBE) faces a slowdown in growth as cheap generative artificial intelligence tools threaten to displace its core software business and weaken long-term pricing power, BofA Securities said Tuesday. The brokerage reinstated coverage of the Photoshop maker with an underperform rating and a $190 price target. Adobe has expanded its AI features, but early monetization represents less than 2% of total annualized recurring revenue, according to the note. "Even with solid AI product execution, the risk is that Adobe becomes less valuable in a world where creation is increasingly simplified, resulting in sustained growth slowdown," BofA analysts including Tal Liani said. AI capabilities are starting to pressure paid assets and new user seats, while threatening Adobe's higher-margin segments. BofA said management has acknowledged ongoing declines in Adobe's stock price due to this pressure, which will broaden as free or low-cost alternatives substitute for paid workflows. Additionally, the simultaneous turnover of the chief executive and chief financial officer introduces structural risks to the company's long-term strategy, the brokerage said. In March, CEO Shantanu Narayen.