The main reason Adobe stock has underperformed since early last year is that investors are worried about the impact of artificial intelligence (AI) on the business. There are a couple of factors at play here.

First, investors are concerned about Adobe’s ability to monetize its flagship generative AI offering, Firefly. This is a powerful tool that enables users to create and edit images and videos for commercial purposes through basic text prompts without facing copyright challenges. However, the issue is that Adobe faces significant competition in this space from the likes of Sora, Runway, Stable Diffusion, and Midjourney and therefore monetization could prove to be challenging. “We see increasing concerns surrounding competitive pressures and a longer time horizon to reach notable AI monetization,” wrote analysts at CFRA Research in July.

Second, there’s a narrative in the market – which originated from Melius Research – that AI is going to “eat” software. The logic here is that AI automation in the years ahead will reduce the number of licenses or “seats” that software firms like Adobe can charge businesses for, shrinking their addressable markets and profit margins. On Adobe specifically, Melius¹ recently cut its estimates and is now forecasting 7% revenue growth in FY2026 and just 4% growth in FY2027. It expects to see downward earnings revisions over the next four to eight quarters and has set a price target of $310 for the stock.