Analysts Identify Why Adobe (ADBE) Stock Is Down despite Strong Q1 Results

Creative software company Adobe (ADBE) reported strong first-quarter results, which showed that artificial intelligence is not severely hurting its business. However, the stock is still getting hit hard at the time of writing, even though most analysts said that the results themselves were strong. The main issue, according to analysts, is that investors focused on slightly slower growth in annual recurring revenue (ARR), a key software industry metric that measures subscription revenue that’s expected to repeat each year.

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Interestingly, analysts at J.P. Morgan (JPM), led by four-star analyst Mark Murphy, noted that Adobe still delivered 10.9% ARR growth on an order book worth more than $20 billion, which they believe contradicts the market narrative that AI is replacing Adobe’s tools. This led the firm to keep its Buy rating on the stock but lowered its price target to $420 from $520.

Meanwhile, RBC Capital Markets maintained its Buy rating while reducing its target to $400 from $430, noting that investors remain focused on whether Adobe’s ARR growth will accelerate again. Other firms took a more cautious view. Morgan Stanley (MS) maintained a Hold rating and lowered its price target to $365 from $425, while highlighting positive trends, including quarter-over-quarter revenue growth, a 50% increase in monthly active users, and a 75% surge in Firefly AI ARR.

Analyst Downgrade

In contrast, Barclays (BCS) downgraded the stock to Hold and cut its price target to $275 from $335. Barclays said Adobe reported $400 million in new net ARR, which fell short of both its estimate of $460 million and the broader market expectation of $450 million. According to the bank, the miss was largely due to weaker performance from Adobe Stock, since more users are now using generative AI tools like Adobe Firefly to create images instead of buying traditional stock photos and videos.

Is ADBE Stock a Good Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on ADBE stock based on 11 Buys, 11 Holds, and three Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average ADBE price target of $352.67 per share implies 40% upside potential.

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