Bank of America on Tuesday resumed coverage of Adobe with an Underperform rating and a $190 price objective, arguing that generative artificial intelligence is eroding the software maker’s competitive edge despite the shares trading near the lower bound of their historical valuation range.
The bank’s analysts, led by Tal Liani, derived the $190 target from 7 times Adobe’s projected 2027 enterprise value to free cash flow (EV/FCF). That multiple is a discount to the roughly 9.7-times average applied to a broad set of software peers, according to the team.
Adobe’s stock closed at $218.07 on Monday, the analysts noted, a level roughly 70% below its 2024 peak and close to the bottom of its 52-week trading range.
AI adoption vs. monetization
While Adobe’s AI products have seen notable adoption, Bank of America emphasizes that this uptake has not yet produced meaningful revenue contribution. The analysts point out that AI-first annual recurring revenue (ARR) still accounts for less than 2% of the company’s total ARR, signaling a gap between product usage and monetization.
The bank models total revenue growth decelerating from 10.5% in 2025 to 8.8% in 2027 and says there is "no clear path to near-term reacceleration." That projection reflects skepticism that AI adoption, to date, will quickly translate into the sort of top-line acceleration needed to justify a higher valuation multiple.
Customer segmentation and substitution risk
BofA’s analysis distinguishes between customer cohorts. Casual and non-professional users are judged most exposed to substitution by AI, since "good enough" AI-generated output could displace paid subscriptions. By contrast, professional and enterprise customers are viewed as more resilient because they require precision and integrated workflows.
However, the bank cautions that not all professional users require the full Adobe workflow. Single-app professionals and prosumers could be vulnerable to lower-cost, AI-native alternatives, creating a potential erosion of higher-margin seat expansion.
Pressure on legacy products and marketplace
The analysts also flagged Adobe Stock, the company’s images and video marketplace, as an area under pressure. Management has said Stock revenue has declined for two consecutive quarters, though a specific figure was not provided. Bank of America views this as evidence of cannibalization risk, where free or low-cost AI tools reduce demand for legacy, higher-margin products and could weigh on long-term seat growth.
Leadership transition amplifies strategic uncertainty
Compounding the business risks, Adobe is undergoing a significant leadership change. The simultaneous departures of CEO Shantanu Narayen, who has led the company since 2007, and CFO Dan Durn have raised concerns for the analysts, who say the dual transition "heightens risk around strategy, continuity, and leadership stability" as the company navigates its AI shift.
Margins and cash flow outlook
Despite the reservations, Bank of America expects Adobe to maintain strong margins and free cash flow generation. The team projects free cash flow margin near 39% by 2028. Still, the analysts argue that robust cash flow alone is unlikely to drive multiple expansion without clearer evidence of AI-driven monetization and renewed growth acceleration.
In sum, the bank sees Adobe as inexpensive relative to peers on certain metrics but believes valuation alone does not justify a more constructive rating until there is stronger proof that AI initiatives are meaningfully boosting revenue and growth.