Melius Downgrades Adobe (ADBE) to Hold, PT $510
Melius analyst Ben Reitzes downgraded Adobe (NASDAQ: ADBE) from Buy to Hold, PT $510.00.
The analyst comments "Enterprise Application Software is Having Challenges with AI: Given recent high-profile software guide-downs (Salesforce, Workday, MongoDB), we wanted to revisit our April 15th report stating that "AI is Eating Software." The great run of Software-as-a-Service since the 2010s may still be in the early innings of unwinding. It feels a bit like when on-prem hardware companies were impacted by the movement to the cloud in the 2010s - and these things tend to last longer than you think. Likely Not a "One-Quarter Thing" Due To: 1) An "AI Factory" is really a "Software Factory" - meaning over the long-term Nvidia and the major cloud platforms will enable companies to create software, customize it, simulate it, test it and deploy it faster than ever before on demand, 2) Coding tools are making smaller AI-first competitors sprout up easier, with fewer engineers already - and this trend should only accelerate, 3) most SaaS companies have been raising prices for years (see figure 9) and given inflation and other priorities, it will be harder to charge extra for AI, and 4) the rise of AI-driven productivity threatens the long-relied-upon "seat model" - perhaps making "outcomes" more relevant - which at the very least means a business model transition is forthcoming. Furthermore, we see AI as a disruptor to traditional databases as unstructured data rises in both importance and usability. In short, you could see AI's impact on Snowflake (not covered) and even parts of hold-rated Oracle, as well as ongoing impacts on Salesforce (CRM) and Workday (WDAY) for a while."
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Shares of Adobe closed at $465.43 yesterday.