Adobe (ADBE) is well-known for its creative software, such as Photoshop and Premiere Pro, but the company’s future growth now depends on more than just its design tools. With the rise of artificial intelligence and cloud-based services, Adobe is working to maintain its lead in the market. As a result, investors will be closely watching its progress.
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Catalysts that May Push the Stock Higher
Unsurprisingly, a major catalyst that would push Adobe stock higher is its expansion into generative AI. The company has introduced tools like Firefly, Acrobat AI Assistant, and GenStudio. Although early feedback on the monetization pace was mixed, analysts from Jefferies and Bank of America remain optimistic. Indeed, Adobe has set a goal to double its AI-driven recurring revenue by the end of Fiscal 2025, which could lead to stronger earnings growth in the coming quarters.
Separately, it is worth noting that Adobe is in a solid financial position, with high non-GAAP operating margins of around 45–46%, and strong free cash flow that gives it flexibility to keep investing in innovation. Additionally, Adobe’s large backlog of remaining performance obligations means it already has significant future revenue locked in, thereby giving investors more confidence in long-term stability.
Risks to Watch Out For
Nevertheless, despite these strengths, competition is growing in the creative software space. In fact, tools like Canva and Midjourney are gaining popularity, especially among younger creators and small businesses. This has raised concerns about Adobe’s long-term pricing power. In fact, Redburn, led by analyst Omar Sheikh, recently downgraded the stock to Sell while cutting its price target from $420 to $280 after warning that Adobe’s dominance could weaken if these newer tools continue to improve.
Moreover, while Adobe’s AI tools look promising, they haven’t yet produced significant revenue. As a result, if monetization takes too long, investor sentiment may cool, which would put pressure on the stock in the near term.
Is ADBE Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ADBE stock based on 20 Buys, six Holds, and three Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average ADBE price target of $479.46 per share implies 35.5% upside potential.
