Adobe shares (NASDAQ:ADBE) traded higher on Wednesday, gaining as much as 3.5% in mid-morning trading before settling 0.96% higher at $248.50, even as Citi Research downgraded the stock to Sell from Hold and cut its price target to $207 from $250.
The advance comes amid a flurry of cautious analyst notes, reflecting concerns that artificial intelligence tools could erode demand for Adobe's creative software suite. Citi analyst Tyler Radke highlighted downside risks to consensus growth estimates for fiscal 2027, citing leadership transitions and uncertainty in the company's creative business strategy.
Leadership changes and growth outlook
Radke noted that incoming CEO Anil Chakravarthy will assume the role amid key vacancies, including the CFO and the head of Digital Media. He expects Adobe to provide a weaker fiscal 2027 outlook when it reports fourth-quarter fiscal 2026 results in early December. A potential strategic reset could weigh on shares in the near term but may allow the company to rebuild its leadership team and refine its strategy.
The analyst also pointed to Adobe's increased focus on monthly active user growth, which he believes could pressure annual recurring revenue in fiscal 2027 and 2028. The company has been prioritizing user acquisition and directing new customers toward lower-average selling price offerings rather than relying on price increases. The impact is expected to be most pronounced in Adobe's core Creative business, amid weaker small and medium-sized business demand and competition from web-based and AI-native tools.
Citi lowered its estimates for net new annual recurring revenue by $470 million for fiscal 2027 and $500 million for fiscal 2028, bringing the revised figures to $1.5 billion and $1.45 billion, respectively.
Wall Street's growing caution
Citi's downgrade follows similar moves from other major financial institutions in October. HSBC cut Adobe to Hold from Buy and reduced its price target to $267 from $310, citing pressure on business growth and the possibility that some users could migrate away from Adobe's creative suite. Wells Fargo also lowered its rating to Underweight from Overweight, equivalent to Sell, and trimmed its price target to $225 from $270. Analysts led by Michael Turrin pointed to worsening organic growth and execution risks during a major management transition, as well as a shift away from pricing-led monetization toward a freemium model.
Despite the downgrades, the average analyst rating on Adobe remains Hold, according to FactSet.
Upcoming earnings as a catalyst
Investors will get another indication of Adobe's growth trajectory when the company releases its fourth-quarter fiscal 2026 results on December 9, after the market closes. Analysts expect adjusted earnings per share of $6.33 on revenue of $6.83 billion. In the same quarter last year, Adobe reported adjusted EPS of $5.50 and revenue of $6.19 billion.
The upcoming report will also provide an opportunity to assess management's outlook for fiscal 2027, particularly as the company navigates leadership vacancies, changes to its Creative business strategy, and competition from AI-powered tools. Adobe shares had already declined 16% through Tuesday from their August 31 closing price of $292.79, adding context to Wednesday's advance.
This article is for informational purposes only and does not constitute financial advice.
