Analysts at Melius Research downgraded shares of Adobe Systems (NASDAQ:) to Buy with a $510 price target, citing artificial intelligence (AI) concerns in a note on Monday.
The firm believes the software industry, including giants such as Adobe, could face a period of disruption similar to the shift from on-premise hardware to cloud computing.
Melius Research argues that AI has the potential to fundamentally change the way software is built and delivered. They point to factors such as the emergence of cloud platforms and artificial intelligence coding tools that can automate tasks and potentially make software creation faster and cheaper. This could open the door for smaller AI-focused competitors to emerge and threaten established players like Adobe, the company said.
The note also highlights the potential impact of AI on traditional business models. The current pricing model, where customers pay per user, may be challenged by AI-based solutions that focus on results or functionality. The transition could put further pressure on established companies, they add.
While recognizing Adobe’s strong brand and existing customer base, Melius Research believes the company may struggle to adapt to the changing landscape.
They point to the emergence of new competitors using artificial intelligence in the market and the ability of existing customers to optimize workflows using artificial intelligence, reducing their dependence on traditional software licenses.
Given these concerns, Melius Research expects Adobe shares to remain rangebound for some time. The firm believes it’s a good idea to wait and see how Adobe adapts to the evolving software landscape before considering investment.