Adobe falls 1.5% after Morgan Stanley downgrades to equal-weight due to AI
Adobe's shares, known for being the maker of Photoshop, have experienced a 1.5% decline, settling at $356.5 before the start of trading, after Morgan Stanley downgraded its rating to "equal-weight." This revision by the firm comes amid uncertainty surrounding the monetization of artificial intelligence (AI) by the company.
Morgan Stanley Downgrade
Morgan Stanley has changed its rating on Adobe's shares from "overweight" to "equal-weight," in addition to lowering its price target from $520 to $450. Analysts argue that Adobe's monetization of its Direct Generation Artificial Intelligence has fallen short of expectations from both investors and the firm itself.
The brokerage highlighted that, in the short term, Adobe faces a lack of catalysts hindering sustainable growth in its AI business. Furthermore, Morgan Stanley points out that limited visibility regarding the AI impact on consumers, simple vendors, and business users negatively affects confidence in the growth of the Creative Cloud platform and its Digital Media division.
Market Outlook
According to data collected by LSEG, 27 of the 41 brokerages covering Adobe's shares rate the company as "buy" or "outperform," while 12 recommend "hold" and 2 suggest "sell" or "underperform." The average benchmark price for the stock is set at $460. Despite these relatively optimistic ratings, it is important to note that Adobe's shares have decreased nearly 19% so far this year, as of its most recent closing.
Context and Market Reactions
Morgan Stanley's decision reflects broader concerns about Adobe's ability to capitalize on its investments in artificial intelligence. The lack of progress in this area compared to initial high expectations has led to the rating revisions. Tech company stocks, in general, have been subject to volatility as investors assess growth prospects amid economic uncertainties.
Analysts have also warned about the complexity of the current market, where the implementation and monetization of emerging technologies like AI may face obstacles that affect both emerging and established companies. In this regard, Adobe is not exempt from these challenges, adding another layer of uncertainty about its future in the tech sector.
With the impact of changes in Morgan Stanley's rating and the overall market situation, investors will be closely watching how Adobe can adapt and respond to these dynamics in the coming months.
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