KeyBanc initiates coverage on Adobe at Underweight, warns of AI
KeyBanc analysts are hitting creative software company Adobe (ADBE) with an Underweight rating as they initiate coverage on the stock alongside a price target of $445 per share. In its investor note, KeyBanc cited generative AI trends among concerns that could contribute to slowing growth for Adobe.
Yahoo Finance Live breaks down the note.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
JULIE HYMAN: And we've got another call of the day for you as well. Adobe is being given a rare sell rating over at KeyBanc. The analyst there initiating coverage of the software giant with an underweight rating citing generative AI and competitive pressure as potential reasons for slow growth in its Creative Cloud offering. It's interesting here because this is an initiation note for software broadly. But the Adobe one really does stand out, again, because there aren't that many sell equivalent ratings on Adobe here.
And the two reasons are competition and not necessarily competition from AI at this point. Canva is a company that has been competing against Adobe that is name checked in this. And then secondly, generative AI is also part of it. So it's, sort of, two pronged competition.
JOSH LIPTON: Yeah, and it's interesting too. As you said, Julie, the KeyBanc analyst here initiating coverage on the software space. And broadly, he's telling clients he likes what he sees. So he looks at backdrop, he says, this looks like similar to the pre-pandemic period and he says the setup they say produced above average returns, lower volatility. So that's good news.
And he named some names he likes. He likes Microsoft, likes ServiceNow. Adobe though he doesn't like and kind of echoing these concerns we've had about the rise of gen AI and gen-AI-focused companies and just the competitive risk that's going to play on Adobe. And certainly, when Adobe last reported, remember, we broke those earnings disappointing the Street. That did, kind of emphasize and heighten the bear case there.
JULIE HYMAN: Yeah, and all of these companies who have been having, like, their developer conferences and whatnot, Adobe is about to have one as well.
JOSH LIPTON: Yep.
JULIE HYMAN: So we'll see if that ends up presenting a catalyst for the shares.
