On Thursday, BofA Securities adjusted its outlook on Adobe shares (NASDAQ:ADBE), reducing the price target to $605 from the previous $640, while still recommending the stock as a Buy. The assessment follows Adobe's fourth-quarter performance, which concluded a year where artificial intelligence (AI) advancements did not translate into immediate market gains.
The analyst from BofA Securities pointed out that while Adobe faces competitive threats from large language models, Canva, and Figma, particularly in the rapidly evolving user interface/user experience (UI/UX) and social media segments, the company is not being overtaken by these competitors. Instead, engagement metrics, such as the creation of 4 billion Firefly images in the fourth quarter, indicate a promising trend. These metrics suggest potential growth from improved upsell and cross-sell opportunities as the year progresses.
The revised price objective of $605 is based on 25 times the estimated calendar year 2026 free cash flow (FCF), a slight decrease from the prior multiple of 26 times. This adjustment reflects a tempered outlook for fiscal year 2025. Despite the lowered target, BofA Securities maintains a Buy rating on Adobe shares, anticipating that the company's efforts to monetize its generative offerings will lead to improved growth.
Adobe's progress in enhancing its generative AI offerings is expected to contribute to a reacceleration of growth throughout the year. The company's ability to leverage its strong engagement metrics and capitalize on its AI capabilities remains a focal point for investors.
The BofA Securities analyst concluded by reiterating confidence in Adobe's strategy and the potential for its AI-driven products to enhance growth, despite the lower price target and the competitive landscape. Adobe's stock continues to be seen as a valuable investment for those looking at long-term growth prospects in the tech sector.
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