BofA Reinstates Underperform on Adobe; Shares Jump 4.6%

Bank of America reinstated coverage of Adobe Inc. with an Underperform rating and a $190 price target in a report published Tuesday, arguing generative artificial intelligence has weakened Adobe’s competitive position. The report noted Adobe shares rose about 4.6% on the day.

Analysts led by Tal Liani valued Adobe at roughly seven times projected 2027 enterprise value to free cash flow (EV/FCF), below a roughly 9.7-times average multiple for a broader software group. The report said valuation alone does not support a more positive stance given rising competition from AI-native products.

Bank of America wrote that AI-first annual recurring revenue accounts for less than 2% of Adobe’s total ARR. The bank forecast total revenue growth slowing from 10.5% in 2025 to 8.8% in 2027 and stated there is “no clear path to near-term reacceleration.”

The analysts described different competitive exposure across Adobe’s customer base. Casual users and non-professional creators were identified as more vulnerable because AI-generated content can replace paid subscriptions. Professional and enterprise customers were viewed as more resilient because they require precision and integrated workflows, while the report warned that “not all professional users need the full Adobe workflow.”

The bank pointed to pressures in Adobe Stock, the company’s marketplace for images and video, noting management disclosed two consecutive quarters of decline. The report said weakness in Stock reflects a risk that free or low-cost AI tools may reduce demand for higher-margin legacy offerings and limit opportunities to expand paid seats.

Analysts flagged recent executive departures as an added uncertainty, quoting the simultaneous exits of CEO Shantanu Narayen and CFO Dan Durn as something that “heightens risk around strategy, continuity, and leadership stability” during the company’s AI transition.

Bank of America still projected strong profitability, forecasting a free cash flow margin approaching 39% by 2028. The report noted Adobe reported 11.5% revenue growth over the last 12 months and a three-year average growth rate near 11%.

Other metrics cited include an operating cash flow margin of 41.6% and Creative Freemium monthly active users rising from 50 million to 90 million year over year. The report said Adobe traded at a price-to-earnings ratio near 12, compared with roughly 25 for its peer benchmark.

The bank reviewed historical downside events, finding 12 declines of at least 20% within a 30-day period since 2010; six of those produced positive returns over the following year. The median one-year return after those declines was negative 4%, with a median maximum drawdown of 17% before any recovery.

Despite the Underperform rating and the concerns outlined in the report, Adobe shares climbed about 4.6% on Tuesday after the analysis was released.