Adobe shares dip after Oppenheimer analysts cut rating of software group

Investing.com - Adobe shares edged lower in premarket U.S. trading on Tuesday after analysts at Oppenheimer slashed their rating of the Photoshop maker.

In a note slashing their recommendation to "market perform" from "outperform," the analysts said the stock offers "good medium-term opportunities" at a "cheap" price.

But they flagged that the outlook for software applications in 2026 is "challenging." The segment has lagged the benchmark S&P 500 and tech-heavy Nasdaq indicies for the past four straight years, with small- to mid-cap software names in particular slumping to one of the worst performance years in 2025, the analysts said.

While a constructive economic backdrop and possibilities for a wave of consolidation could entice some investors, the software sector has trailed other IT industries in AI monetization, they noted.

"Themes that worked well in the past—AI, verticalization, and digital transformation—fell apart" last year, the analysts said.

"[A]n AI bear narrative on the constraints to software supplier models during the AI technology transition is compelling investors to lose confidence in multi-year growth trajectories and lower software company multiples."

For Adobe, whose offerings like Premiere Pro and InDesign have made the company a force in creative software, anticipated growth momentum in its digital media business from its AI initiatives did not "play out as we expected," they added. Instead, digital media growth slowed last year.

Adobe has been working to fold AI into its suite of products in a bid to ward off competition from newer rivals like Midjourney and OpenAI who have specialized in the technology.

"[A] challenging operating environment during the AI technology transition leading to uninspiring and decelerating top-line growth, inconsistent execution with product cycles, durability concerns about the moat, lackluster investor interest for owning software names, and down year-on-year operating margin guidance in FY26 will likely weigh negatively on the sentiment for the company’s opportunities this year, and limit near-term upside for Adobe shares," the Oppenheimer analysts said.

Shares of Adobe have fallen by more than 6% over the past one-year period.

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