By Shares of Adobe (ADBE) declined on Monday after Wells Fargo downgraded the software company by two notches, citing concerns about deteriorating underlying growth, rising competition, and challenges in monetising artificial intelligence (AI).
Wells Fargo lowered its rating on Adobe to Underweight from Equal Weight and cut its price target to $225 from $270.
The revised target implies potential downside of more than 5% from current levels.
The brokerage said Adobe’s growth challenges appear increasingly structural rather than a temporary slowdown, with acquisitions contributing to reported growth while its core business faces mounting pressure.
Wells Fargo flags weakness in Adobe’s core growth
Wells Fargo pointed to Adobe’s full-year forecast of approximately 10.2% growth in annual recurring revenue (ARR) following its second-quarter results.
The forecast included about $480 million in revenue contribution from its acquisition of Semrush, making the underlying growth outlook less impressive, according to the brokerage.
ARR measures the annualised value of recurring subscription revenue.
Growth can come from acquisitions, known as inorganic growth, or from existing business operations, known as organic growth.
Wells Fargo estimated that Adobe’s organic net new annual recurring revenue (NNARR) declined by more than 40% in the third quarter.
The brokerage also estimated that Adobe would need to generate nearly twice as much net new ARR in the fourth quarter as in the previous quarter to achieve its full-year targets.
It warned that reaching this level could prove difficult because of competitive pressure and pricing constraints.
AI competition and management transition add risks
Wells Fargo analyst Michael Turrin outlined four key reasons for the downgrade, including weakening growth momentum, risks to fiscal 2027 guidance, pressure from AI competitors and intensifying competition in Adobe’s creative software business.
“3Q results suggest cracks starting to show, steep 4Q ramp looks difficult (4Q NNARR needs to ~2x q/q),” Turrin wrote in a note to clients.
He also highlighted incremental risks to Adobe’s preliminary fiscal 2027 outlook, citing the absence of a price increase and an ongoing management transition involving both the chief executive officer and chief financial officer.
The brokerage further pointed to a chief information officer survey that reportedly showed Adobe losing budget share during the AI evaluation cycle.
Competition in Adobe’s core creative business is also intensifying, according to Wells Fargo, adding pressure at a time when the company’s growth outlook is already facing challenges.
Turrin said he had “came away more cautious” on front-office and creative software, reflecting the brokerage’s concerns about Adobe’s competitive position and growth trajectory.
Wells Fargo forecasts slower ARR growth in fiscal 2027
Wells Fargo has lowered its expectations for Adobe’s recurring revenue growth in fiscal 2027, projecting negative growth in net new ARR and total ARR growth of approximately 7%.
That forecast is below the market consensus of more than 8% total ARR growth, according to the provided analysis.
The brokerage also reduced its margin forecasts, citing Adobe’s focus on adding users rather than prioritising near-term monetisation.
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