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Adobe Faces Challenges in Realizing AI Potential, Analysts Say

Investing.com – Despite Adobe’s (NASDAQ:) commitment to its generative machine-learning text-to-image technology, analysts from Deutsche Bank express concerns regarding the company’s financial performance related to this innovation. In their latest analysis, they highlight a lack of immediate positive impact from these developments on Adobe’s financials.

In a recent report, Deutsche Bank downgraded Adobe’s stock rating from “buy” to “hold,” citing a belief that the company’s share prices are likely to remain “range-bound” until more substantive evidence of revenue generation from its artificial intelligence capabilities becomes apparent. Led by analyst Brad Zelnick, the team emphasizes the need for Adobe to demonstrate significant progress in monetizing its AI advancements.

Notably, Adobe’s annual net new annual recurring revenue—a key metric that tracks revenue from new customer acquisitions against losses from existing clients—has shown a continued decline for the third consecutive year, indicating a slowdown in growth patterns. The analysts further noted that current projections from Wall Street suggest an additional slowdown for the ongoing fiscal year.

Deutsche Bank’s analysts indicated they are “moving to the sidelines” regarding Adobe’s stock, suggesting that while they foresee Adobe becoming a prominent player in the race for generative artificial intelligence monetization, the realization of this potential may take time to reflect in the company’s financial disclosures.

This analysis follows Adobe’s recent announcement of a revenue forecast for the upcoming year, projecting figures between $23.30 billion and $23.55 billion. This estimate falls short of the average analyst expectation of $23.78 billion, as identified by LSEG data referenced by Reuters.

In reaction to the disappointing revenue outlook, numerous brokerages have downgraded their price targets for Adobe’s shares. This comes despite management’s optimism for solid growth in the latter half of the fiscal year. Adobe is heavily investing in AI-enhanced products, notably its Firefly tool, to stay competitive against emerging challengers such as Stability AI, Midjourney, and OpenAI’s Sora.

Consequently, Adobe’s shares have experienced a significant decline, dropping more than 27% over the past year, signaling investor caution in light of the company’s financial trajectory and competitive landscape.

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