Morgan Stanley slashes Adobe price target as AI competitors threaten market share

Morgan Stanley has slashed its price target for Adobe, warning that the software giant faces serious threats from AI-powered competitors like Figma and Canva that are rapidly gaining users with their “Magic” features and AI agent integrations. The investment bank’s analysts expressed doubt that Adobe can meaningfully monetize its AI investments, despite the company’s attempts to integrate generative AI across its product suite.

What you should know: Adobe’s stock has dropped over 18% year-to-date despite beating third-quarter earnings expectations, with analysts questioning whether the company’s AI strategy can generate adequate returns.

• Morgan Stanley analyst Keith Weiss warned 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.”
• Melius Research analyst Ben Reitzes also cut his price target, stating that the “world is coming around to the reality that ‘AI is eating software.'”

The competitive threat: Newer platforms are attracting massive user bases by offering AI-powered alternatives to Adobe’s traditional tools.

• Figma, a web-based design platform, and Canva, a graphic design service, have drawn tens and hundreds of millions of monthly users respectively, leveraging AI integrations to compete directly with Adobe’s core offerings.
• These competitors are successfully “leapfrogging the 42-year-old software giant with AI tech,” according to analysts.

Pricing pressures: Adobe’s expensive subscription model may be hindering its ability to compete with cheaper alternatives.

• Customers pay up to $22 monthly for Photoshop alone, or nearly $70 monthly for the comprehensive Creative Cloud Pro subscription.
• One Reddit user questioned: “What amateur can afford the whole Adobe suite for their hobby?”

Broader AI concerns: The investment warning comes amid growing skepticism about AI’s long-term profitability and consumer acceptance.

• Tech companies have invested hundreds of billions in generative AI, but questions remain about when these investments will generate adequate returns.
• Recent Pew Research Center polling found that the majority of US adults believe AI will “worsen people’s ability to think creatively.”
• Adobe has faced criticism for flooding its Stock archive with AI-generated content, with photographers reporting that nearly half of images were AI-created as of May.

What they’re saying: Career tech investor Roger McNamee warned that accountability for AI investments may come sooner than expected.

• “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,” McNamee wrote in The Guardian.