Adobe Is in Serious Trouble Because of AI

Adobe Is in Serious Trouble Because of AI, Morgan Stanley Warns​

"The world is coming around to the reality that 'AI is eating software.'"

Photoshop and Acrobat developer Adobe could soon be in serious trouble thanks to the emergence of generative AI.

As The Street reported last week, Morgan Stanley recently cut its price target on the tech giant, warning that major competitors, including graphic design platforms Figma and Canva, could soon come for its lunch by leapfrogging the 42-year-old software giant with AI tech. Those challengers have drawn tens and hundreds of millions of monthly users, respectively, luring them in with AI agent integrations and other so-called “Magic” features.

Photoshop and Acrobat developer Adobe could soon be in serious trouble thanks to the emergence of generative AI.

As The Street reported last week, Morgan Stanley recently cut its price target on the tech giant, warning that major competitors, including graphic design platforms Figma and Canva, could soon come for its lunch by leapfrogging the 42-year-old software giant with AI tech. Those challengers have drawn tens and hundreds of millions of monthly users, respectively, luring them in with AI agent integrations and other so-called “Magic” features.

And while Adobe has responded to the immense pressure by pointing to widespread adoption of its own AI integrations throughout its suite of apps, analysts are growing wary of its ability to keep up.

Morgan Stanley slashed its price target for the software giant, warning that Adobe has yet to meaningfully monetize its approach to the much-hyped tech. In a note last week, the investment bank’s top analyst, Keith Weiss, warned that “there is relative uncertainty in a sizable portion of the Adobe [annual recurring revenue] base where we lack confidence in Gen AI advancements being a net positive.”

Adobe’s stock is down just over 18 percent year to date, despite topping analysts’ estimates with its third-quarter results. However, its annual recurring revenue has been flagging, Morgan Stanley warned, indicating that its AI push may not buoy up enough excitement alone.

Last month, Melius Research analyst Ben Reitzes had also cut his price target for Adobe, warning that the “world is coming around to the reality that ‘AI is eating software.'”

There are also broader concerns that the enthusiasm surrounding the tech could start bottoming out, in a bursting of the AI bubblethat analysts have been warning about for quite some time.

Tech companies have invested hundreds of billions of dollars in generative AI. But when or if they will ever turn a profit on it remains a burning question on the minds of countless investors.

“The day may come sooner than many expect when shareholders, directors and executives will demand evidence that the massive investment in [large language model] technology will generate an adequate return for them,” career tech investor Roger McNamee wrote in a recent essay for The Guardian.

For now, despite its price target downgrade, Wall Street remains bullish on Adobe, especially following a better-than-expected earnings release earlier this month.

But how long the media software stalwart will be able to convince users that it’s maintaining an edge over its rapidly growing competition remains to be seen.

Besides a scramble to the top, appetite for AI appears to be waning. Consumers are increasingly becoming fed up with having AI infiltrate every aspect of their daily lives. For instance, recent polling by the Pew Research Center found that the vast majority of US adults think that AI will “worsen people’s ability to think creatively.”

Others point out that Adobe’s costly subscription-based model could be hurting its efforts to attract new customers, especially with the advent of far cheaper or even free alternatives such as Canva.

“What amateur can afford the whole Adobe suite for their hobby?” one Reddit user suggested. Customers are charged up to $22 a month for just Photoshop, or almost $70 a month for access to a more comprehensive Creative Cloud Pro subscription.

The company has also been criticized for flooding its Adobe Stock archive of rights-managed images with AI slop. As of May, photographers reported that almost half of the images were generated with AI. Source

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