Jefferies reiterated a Hold rating on Adobe Inc. (NASDAQ:ADBE) and raised the price target to $285 from $230 on August 30, citing expectations that the company will deliver results in line with expectations. The research firm has echoed the company’s long-term prospects amid heightened focus on user acquisition and engagement.
Adobe AI Strategy for Growth
During the second-quarter earnings call, management reiterated the new focus in response to the way artificial intelligence is changing the way users discover and buy creative and productivity tools. According to CEO Shantanu Narayen, AI is accelerating customer behavior, and Adobe must respond.
Therefore, the focus is on enabling friction-free onboarding for new users through “freemium” artificial intelligence offerings, rather than pushing them into direct paid journeys. Amid the new push, Jefferies expects Adobe to reiterate its fiscal 2026 outlook for 10.2% year-over-year growth in total ending ARR. The company also expects revenue of between $26.5 billion and $26.6 billion for fiscal 2026.
Adobe Inc.’s opportunity hinges on its ability to turn Firefly, Acrobat AI, and AI-powered Creative Cloud features into monetized products, even as it focuses on attracting new users and enhancing engagement levels. The company is already seeing increasing Firefly adoption and AI-first ARR as Creative Cloud’s huge installed base gives it millions of potential new AI customers.
Investors Concern
Earlier on August 19, BofA reiterated an Underperform rating on Adobe and raised the price target to $220 from $190. BofA remains concerned that generative AI could pressure Adobe’s longer-term growth as lower-cost, AI-native alternatives increase competition and Adobe’s AI monetization has yet to materially accelerate overall growth. Additionally, its core products, including Photoshop, are under immense pressure from AI. Free or low cost AI native tools are making it harder for the company to expand its revenue base.
Adobe Market Signals
According to the Insider Monkey Database, hedge fund ownership in Adobe Inc. declined to 81 funds in Q2, down from 86 in Q1. Arrowstreet Capital the biggest hedge fund holder tracked by IM reduced its holdings in the stock by 1% in the second quarter to 6.78 million shares valued at about $1.39 billion. Harris Associates increased its holdings by 24% to 2.83 million shares valued at $580.02 million.
As of August 14, short interest in Adobe stock stood at 4.5% on 17.97 million shares sold short. It is a slight improvement from the 19.35 million shares previously sold short, signaling that bearish investors are covering their positions.
Bottom Line
Adobe is a solid investment play as the business is highly profitable and deeply entrenched. However, the stock has been pressured by fears that generative AI will commoditize Photoshop, Illustrator, Acrobat, and other creative tools. Management is moving to address the issue by renewed focus on attracting new customers and enhancing engagement levels in a bid to attract more AI customers. The stock is currently trading at a discount, with a trailing price-to-earnings multiple of 16.54x as of September 1 compared to the sector median of 33x. Investors will have to see AI translate into faster recurring revenue growth for the market to assign it a higher multiple.
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